Do You “Like” Prenuptial Agreements?

Mark Zuckerberg, founder and CEO of Facebook, was rich before his company went public May 18.  Now, overnight as a result of the second largest IPO in history, Zuckerberg is worth more than $20 billion.  Interestingly, the day after Facebook went public, he married his long-time girlfriend.  The first question that entered my mind upon reading this was, “Does he have a prenup?”  The second question in my mind was, “Does he need a prenup?”  My latter question is raised because of the timing of the marriage – just one day after a value has been placed on Facebook and on Mark Zuckerberg’s wealth.

Having a Prenuptial Agreement

As a brief refresher, a prenuptial agreement between two people about to marry sets forth the rights of each person in the property of the other in the event of divorce, and is generally structured to preserve the assets of the wealthier person.  At this time, there is no report about whether or not Mark Zuckerberg has a prenuptial agreement.  One would think that someone of his wealth (and certainly many people with less wealth, which is most everyone given that he is one of the 25 richest people in the world) would have a prenuptial agreement in place.  This is a reasonable assumption because of a prenuptial agreement’s ability to protect many things, but especially the assets in existence before the marriage and the continued increase in wealth from those assets after the marriage.

Is a Prenuptial Agreement Necessary?

Any lawyer who would advise Zuckerberg would of course tell him a prenuptial agreement should exist in his situation.  Yes, it is not romantic, but it is a wise business decision.  But is the prenuptial agreement necessary?  This is a complicated question.  Donald Trump is on the media circuit saying that Mark Zuckerberg should have a prenuptial agreement and if he divorced in Trump’s home state of New York, his wife would get a “big chunk of what he has.” However, Zuckerberg lives in California, which does not have the same laws as New York for division of marital property.  Rather, California has community property laws; and separate property, including that which existed before marriage, is not shared with the other spouse upon divorce.

In Mark Zuckerberg’s case, his wealth and the value of his company became documented literally one day before he married.  The IPO value of his shares and options was $20 billion, with the company itself valued at $100 billion. Does Zuckerberg need a prenuptial agreement to protect this wealth, or does he just need strong legal advice on how to preserve his separate property interest in Facebook and any other assets?  For Zuckerberg, as well as for anyone without his immense wealth, such assets could include bank accounts, real estate, personal belongings and more.  No matter what an individual’s assets, there are cases where separate property wealth can be preserved without the need for a prenuptial agreement.

As for Mark Zuckerberg’s new wife, most people would think she would not want a prenuptial agreement so that she can share in Zuckerberg’s wealth in the event of a divorce.  However, if you accept my proposition that a person can in certain circumstances preserve separate property wealth without a prenuptial agreement, then maybe someone in Mrs. Zuckerberg’s position would want a prenuptial agreement.  In such an agreement her lawyer(s) would want to ensure that her husband’s   own creative lawyering prior to the marriage would not freeze her out of community property accumulated during the marriage.

So What Should Be Done?

Prenuptial agreements are highly personal and they often are emotional concepts for each prospective spouse.  The most prudent course of action if either spouse-to-be has wealth is to discuss money before marriage.  Believe me, if this discussion does not occur before marriage, tougher money discussions will occur after marriage.  It is best to have the discussion before marriage to make sure a shared understanding exists about finances.  Lawyers can make this conversation adversarial, which is typically the last thing a couple wants when moving toward the happy event of a wedding.  Therefore, an alternative approach to prenuptial agreements should be considered:  mediation.

Next week, I will explain why all prenuptial agreements should be negotiated and created through the process of mediation.