The problem facing the courts regarding high-tech divorces is the attempt to calculate the true value of the start-up companies owned by one of the parties.
When they try to estimate their un physical assets, such as the value of a start-up, will it be assessed according to its real value at the time of the procedure or perhaps according to its sales potential.
How is the property divided between entrepreneurs?
The most difficult problem facing the courts in Israel when it comes to high-tech divorces is the attempt to calculate the true value of the start-up companies owned by one of the parties. This issue has already spawned a large number of complex scenarios, but no clear position on the issue has yet been determined.
The court operates according to a principle, according to which the property that belonged to the husband or wife before the marriage should not be included in the separation of property agreement, but the property obtained and accumulated when the couple lived together, should be divided equally.
According to similar rulings given in the past, the court will appoint an expert on its behalf who will calculate the share of the relationship from the time the start-up has been established. This part will be considered as the joint part of the couple in the business – and it will be divided equally between the parties. If the start-up has existed for 16 years and the couple started their life together about 8 years ago, then only the part accumulated during the eight years of sharing is expected to be divided between the parties.
It is not just about stocks but there are also reputations and options
High-reputation high-tech people are not always aware of the fact that in the event of a divorce, their reputation will be considered common property to them and their spouses. This means that when the property and assets are divided between the spouses, the spouse’s reputation is calculated according to the values in the market.
In the matter of personal reputation, with the help of appropriate legal advice, it will be possible to negotiate the amount of the portion due to the spouse who has no reputation. In any case, if the parties do not reach an agreement, the court will usually be forced to appoint an expert on its behalf who will assess the value of the reputation accumulated from the date of marriage until the date of separation, in order to divide them equally between the parties.
Distribution of options of divorcing high-tech executives
Many high-tech people and entrepreneurs receive a package of stock options in the company during their work. These options constitute their “wet dream”, since on the one hand, they may one day be a ticket for them to the upper socio-economic class, on the other hand there is a chance that those options will not be worth anything.
The economic crisis currently affecting the world in general, of course, also affects the high-tech industry, and may reflect a very low value for options that were previously worth millions. It is now unclear whether they will return to their old value or be completely erased.
The inclusion of options in the past division of property may severely hurt those left with the options, which, in an economic crisis, have become a worthless paper.
It is important to understand that the treatment of options and other future assets does not have to be decided when discussing the division of property and often, it is even better not to divide them in this way. Therefore, it is advisable to include in the divorce agreement a clause which obliges the holder of the options to divide them equally in the framework of the separation or when they will be converted. If the options are worth a lot of money at the time of conversion, and if they are not worth anything – in any case they will be divided equally between the couple.
Another solution is for the court to appoint an expert on its behalf who will estimate the value of the options from the date of marriage until the date of separation, and will divide the value equally between the parties at the time of divorce. The fault in this solution is, as stated, that it is merely an assessment, when the expiration date of the option can prove to be problematic for one of the parties. In addition, these estimates are based on calculations that may vary radically from expert to expert. In any case it is advisable to consult professionals, who specialize in the distribution of unrealized property at the time of divorce.
