24 May 2012

This past weekend in Palo Alto, California, Facebook founder Mark Zuckerberg married his college sweetheart Priscilla Chan in front of about 100 guests in the couple’s backyard. The wedding was a surprise to the guests who thought they were attending a party to celebrate Chan’s recent graduation from UC San Francisco medical school. The lucky guests also got to watch the couple dance while serenaded by Green Day lead singer Billy Joe Armstrong.

People are wondering now that one of the world’s youngest billionaires has tied the knot, did the couple sign a prenuptial agreement before the wedding? Zuckerberg certainly had 17 billion reasons to do so. According to a recent New York Times article, a spokesperson for Facebook declined to comment on whether the couple executed a prenuptial agreement before the wedding. Since a prenuptial agreement is a private document, the public may never know if one was signed.

California’s Community Property Law.  In California, once a couple is married, marital assets are determined under community property laws. California law provides that, except as otherwise provided by statute, all property, real or personal, wherever located, acquired by a married person during the marriage while living in California is community property. Assets that are not community property assets are considered the separate property assets of one of the spouses.  Separate property assets of a married person include:

1.         property owned by the person before marriage;

2.         property acquired by a person after marriage by gift, bequest, devise or descent;

3.         rents, issues and profits of separate property assets; and

4.         earnings of a spouse while living separate and apart from the other spouse are separate property earnings.

There are complexities in the community property system, particularly with respect to a separate property business. If one spouse owns a separate property business, a portion of it may be considered community property if the owner spouse’s efforts during the marriage (i.e., community property efforts) cause the value of the business to increase. The increased value that occurs during the marriage could be considered community property. This is an issue faced by Zuckerberg and Chan. Zuckerberg owned his Facebook stock before the marriage, so it is clearly his separate property. However, as an active owner in this company, Zuckerberg’s efforts working in the company to increase its value could cause a portion of his ownership in Facebook to be considered community property.

Prenuptial Agreements. Given the high divorce rate in California, many wealthy couples do not want the California community property laws to dictate the definition of their marital property. California law permits a couple to override the community property laws through a prenuptial (or postnuptial) agreement.  In a prenuptial agreement, a couple may:

1.  Prevent the creation of community property.

2.  Maintain the separate property nature of each person’s property (even if efforts are made during the marriage to increase the value of the separate property assets).

3.  Waive or limit spousal support upon divorce.  But note that a provision regarding spousal support in a prenuptial agreement is not enforceable against the party for whom enforcement is sought if: (a) that party was not represented by independent counsel at the time the agreement is signed or (b) if the provision for spousal support is unconscionable at the time of the divorce.  Cal. Family Code § 1612(c).

4.  Plan their estates.  The couple may agree how their estate plan should be designed to determine how assets will be distributed to each spouse upon death.

5.  Transmute the character of property.  This means that the couple may agree that: (a) either party may convert: their separate property to community property,  (b) either party may convert their separate property to the separate property of the other party, or (c) they will convert their community property to separate property.

Hopefully, Zuckerberg and Chan will have a life-long marriage and we will never find out if they signed a prenuptial agreement. If you are considering marriage or are already married and would like to define your marital property rights outside of the scope of the California community property laws, please do not hesitate to call us to advise you on whether this type of agreement is right for you.

References, New York Times, Zuckerberg’s Property Status, Post Marriage, May 21, 2012, and Mashable Social Media, Mark Zuckerberg’s Wedding: What Green Day’s Singer Performed, May 24, 2012.

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com

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