Your CEO's Divorce Is Your Problem

​Hans Guntren is CEO of Deliberately.ai.

getty

The end of a marriage is one of the most destabilizing events a person can go through, both emotionally and financially. For executives and founders, it brings an added level of challenge. The legal and financial exposure of divorce is substantially higher than for a typical employee. Depending on the company's structure and the affected individual’s role, the ripple effects can extend to cash flow, company control, confidentiality and even leadership stability.​

At the same time, companies are often unprepared, with the unspoken stance being that employees should deal with the stress themselves. When a key individual is affected, though, it really is the company's problem.

A Risk In Plain Sight

Boards rarely discuss the divorce risk of their senior leaders. Yet a University of California analysis of married business owners found that nearly one-third of entrepreneurs had divorced, roughly double the rate of non-founders in the same age group. Stress erodes patience, fuels money fights and eats up the emotional bandwidth couples need to stay connected.​

The productivity hit alone is striking. Among business owners going through divorce, one survey found that "57% say their company has taken a financial hit" and nearly one in 20 closed their business entirely under the financial strain. You essentially have another full-time job of restarting a new life, separating assets and possibly moving and redefining your parenting if you have children.​

​I lived this myself. During my divorce, I was at work, but I wasn't really at work. We all can muck our way through tough times, but it’s a serious risk to the company’s bottom line if a key person is distracted for a year or more.

Equity And Control

The most acute risk for founders is what happens to company ownership. In private companies, founder shares created during the marriage are generally considered marital property. Businesses started before the marriage may have appreciated significantly during the union, and under some state laws, that appreciation can be subject to equitable division. If you're a key stakeholder, suddenly half of your equity could go to your ex, and that changes the incentive structure drastically. Suddenly, you have less reason to stay and lean in the way you once did.

​Voting rights can shift, too. When Jeff Bezos and MacKenzie Scott divorced, Bezos transferred roughly 4% of Amazon's shares to her, with a value of nearly $36 billion. This was a meaningful move on the cap table of a major public company that affected both voting power and investor perception.

​CFOs feel a parallel pressure. Executive wealth is often tied up in equity rather than liquid assets. To satisfy a settlement, they may push to sell shares at a bad time, request large bonuses, restructure compensation or advocate for a liquidity event before the company is ready. There's also a leadership continuity risk: A founder may simply leave, in part because starting somewhere new means clean equity without an ex holding half of it.

Confidentiality And Reputation

Divorces are adversarial by nature, and a soon-to-be-ex spouse may have had access to privileged company information. When an executive's compensation or net worth is tied to the business, divorce attorneys may seek internal financial records, valuations, projections or equity documents. Unless filings are proactively sealed, those documents can end up in hearings, judicial opinions and the hands of the media.

​For a CEO, personal turbulence can raise concerns among investors. For a founder whose personal brand is tied to the business, leaked filings can damage everything from endorsement opportunities to customer trust.​

Preemptive Planning

When a company brings in a key individual who's married, it's reasonable to have a conversation about what should be in place in the event of a future divorce. Think of a marital agreement the way you would a shareholder agreement: a sober document that protects everyone if things change. It's not romantic, but it doesn't have to be adversarial either.

​Prenups and postnups, when executed properly with independent counsel on both sides, can clearly identify company equity as separate property and require mediation that keeps company financials private. On the company side, shareholder agreements with transfer restrictions and buyout provisions can keep a court-ordered transfer from dragging an unintended new shareholder into the picture. The existence of an agreement alone can prevent litigation from starting.

​If a divorce is already underway, the priorities become containment and support. That means minimizing what becomes public, negotiating a structured settlement that preserves business continuity and keeping the cap table intact. Mediation almost always beats litigation. Bring the general counsel in early; governance obligations, investor relationships and disclosure considerations don't pause for a personal crisis.

​It’s critical to remember that executives are already in high-demand, high-stress roles. Multiply that by an order of magnitude or more in a contested divorce. Companies that plan ahead and offer meaningful support when the crisis hits protect both their people and their bottom line

Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives. Do I qualify?