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Sep 22, 2026
Starting a company can carry both significant benefits and substantial risk. It can also create several complications if you go through a divorce after starting a company while married. The private shares and stock options assigned to startup founders could be worthless tomorrow or worth millions later. Many clients at the Law Offices of Rod Firoozye ask, “What happens to startup equity when a Silicon Valley founder gets divorced?”
California’s Asset Division Laws
California’s asset division and business divorce laws stipulate that the value of community property be split evenly between the two divorcing spouses. Therefore, if you started the company during the marriage, making it community property, you can expect to lose half of the equity you have in it when you get divorced.
A company should be considered community property if it was:
- Founded during the marriage
- Founded before the marriage but grew substantially as a result of your work during the marriage
If the company was founded during the marriage, it may be considered community property in its entirety. If it was founded before the marriage, only the growth that occurred during the marriage is subject to equal division.
While the 50/50 split dictated by California law sounds simple, it can quickly become complicated in cases where private shares and stock options get involved. Public company stock has a clear market price. Private shares work differently. Courts must determine the current value of an asset that may not be easy to sell for many years.
Methods for Valuing and Dividing Private Shares
California courts have several methods for valuing private shares. Financial professionals are often called upon to determine their value based on the company’s financing or the value of similar companies. Courts often apply a discount because the shares cannot be easily sold. They may issue an in-kind division of shares if an immediate buyout is not feasible.
Deferred division under a court-supervised framework is also an option, allowing each spouse to receive their respective percentage of the stock to hold independently, awaiting a future liquidity event.
Challenges Associated With Stock Options
Stock options that were earned during the marriage are community property, even if they remain unvested at the time of separation. In these cases, California courts apply time formulas like the Hug or Nelson formulas. These divide equity based on the relation of the vesting period to marital efforts, as opposed to post-separation work.
In general, the Hug formula is used when options were given to reward work done in the past. This leads to a relatively high portion of the stock options being considered community funds. The Nelson formula is used when the options were given to incentivize future performance that could occur after the separation. When this formula is used, the marital portion shrinks.
Protecting Your Interests
Silicon Valley is home to thousands of startups, with 105 “unicorn” startups currently valued at $1 billion or more, with Waymo being a top example. Whether you founded a startup that has already seen serious success or your financial future is more at risk, it’s important to protect your business interests by hiring a Silicon Valley asset division attorney.
Your legal representative can work with a team of forensic accountants and business valuation professionals to come up with an accurate valuation for your company. Our firm can determine what portion of the equity is considered community vs. separate property. We can also go over your options for dividing it evenly with your spouse.
FAQs
What Assets Are Untouchable During a Divorce?
The assets that are untouchable during a divorce are separate property. This property is acquired before the beginning of a marriage or after the official date of separation. Certain types of property acquired during a marriage are also considered separate property. These include gifts to one spouse and inheritances. Separate property can be converted into community property if it is commingled with marital funds.
What Happens to Equity When the Founder of a Startup Leaves?
What happens to equity when the founder of a startup leaves varies, depending on whether there was a vesting schedule or a founder’s agreement put into place. Departing founders keep any vested shares they have already earned, but the company usually exercises a repurchase right to buy back unvested shares. Repurchased shares are usually returned to the company pool or distributed to the remaining founders.
How Much Equity Should a Founder Get in a Startup?
How much equity a founder should get in a startup varies. Sole founders typically keep most of the equity. Co-founders usually split it evenly or based on their specific roles and contributions. Generally, the person who builds the product or begins working full time for the startup first receives a larger share of the equity, even if starting the company wasn’t their idea.
Should Cofounders Receive 50/50 Equity?
Whether cofounders should receive 50/50 equity depends on the specific circumstances surrounding the birth of the startup. If one person put in more of the work or investment, a 60/40 or even 70/30 split may be agreed upon to reflect that fact. In cases where there are more than two cofounders, equity is often divided according to the roles each of the founders had.
Hire an Asset Division Lawyer
If you or your spouse founded a Silicon Valley startup and you are planning to get divorced, it’s important to hire an asset division lawyer to pursue an equal division of community property. The specifics of each startup founding and every divorce are different, but you can always rely on a skilled Silicon Valley asset division attorney to work out the details of a fair divorce agreement.
You can trust the team here at the Law Offices of Rod Firoozye to help you with complex asset division tasks associated with getting divorced after starting a Silicon Valley company. Since we began our practice in 1996, we’ve worked with countless tech-based startup founders to protect their assets and make sure that their divorces go smoothly. We can help you, too. Contact us to schedule an initial consultation regarding your asset division case today.
