Most people think of divorce as solely a personal issue. However, for executives, founders, and key employees, it can present a business risk, depending on the structure of the company and the individual affected by the divorce. For example, in companies with concentrated ownership, equity compensation, or key-person dependency, divorce can impact cap table structure, governance, liquidity planning, and general operations. But why should General Counsels (GCs) and Chief Financial Officers (CFOs) pay attention? Because the divorce of a key employee or founder can impact cash flow, company control, confidentiality of key matters, and leadership stability. GCs and CFOs are generally responsible for managing these types of business consequences.

As another example, imagine a founder going through a divorce who holds common stock that a court considers marital property. If a spouse is awarded part of that value, the company may face questions about ownership, voting rights, or forced buyouts.

A Deep Dive into How Divorce Becomes a Corporate Problem

Let’s take a closer look at how a divorce can become a corporate problem, one that needs to be handled by either the GC and/or the CFO of the company.

Equity exposure

A well-known example of how divorce becomes a corporate problem through equity exposure is the divorce of Amazon founder Jeff Bezos and his ex-wife, Mackenzie Scott. In their divorce, a large portion of Amazon stock accumulated during the marriage was treated as marital property. As part of the divorce settlement, Bezos transferred roughly 4% of Amazon’s shares to his ex-spouse, instantly creating a significant shift in ownership of a public company. This demonstrates how divorce can directly affect a company’s cap table (by transferring 4%), company control (by shifting voting rights and power), and investor perception when executive wealth is concentrated in equity rather than cash.

Company control risks

When a divorce is on the horizon, there’s a risk of voting rights dilution when shares are considered marital property and divided up in the divorce. Following the Bezos divorce example, when Bezos gave away 4% of his shares to his ex-wife, it may have immediately reduced his voting power and made her one of the company’s largest shareholders.

It’s important to note that forced ownership transfer is not quite as common anymore, but may occur when a court requires equity to be transferred to a spouse as part of a divorce settlement, even if the company or founder would not otherwise choose to add a new owner. For example, in Lieberman–Massoni v. Massoni, a New York court awarded the ex-wife 35% of the value of the husband’s shares rather than transferring 35% of the shares themselves, because an in-kind transfer or assignment was not shown to be practical.¹ The court noted that there was no good way to transfer shares without creating administrative and structural complications—so the court concluded that an in-kind distribution wasn’t proven to be “practicable” or “not unduly burdensome.” This case shows that even when business equity is marital property, New York courts, as well as other state courts, may prefer a cash/value-based distributive award over making a spouse an actual shareholder.

Liquidity and cash-flow pressure on CFOs

The unfortunate truth is that executives often need large amounts of cash to satisfy settlements, such as transferring the “value” of a portion of shares instead of the actual shares to avoid forced ownership transfer consequences. And executives’ wealth is often tied up in their equity rather than in liquid assets. To get more cash on hand, executives may push for selling shares at a bad time, requesting large bonuses, restructuring compensation, or advocating for a liquidity event before the company is ready. This can pull CFOs into decisions that would not otherwise be on the table.

Confidentiality and discovery

Divorce may lead to sensitive company information being pulled into the litigation, which could ultimately become public. For example, 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, sometimes subpoenaing the company directly. So how does this information become public? Unless they are proactively sealed, they may be included in filings, hearings, or judicial opinions, which can be accessed by the media or other third parties.

Reputational and distraction risk

Depending on the size of the company and how public-facing the parties are, a divorce within leadership or key employees may generate reputational and distraction risks. From the reputation risk side, it can draw unwanted media attention, fuel public speculation about leadership stability, and create external narratives that distract investors, partners, and customers from the company’s core business.

From the distraction side, if the divorce is high-profile or the spouse of the employee/founder is well-known, it may cause internal morale issues, such as increased speculation, divided loyalties, workplace distractions, and erosion of trust within leadership teams.

Reducing Exposure to Corporate Risk During Key-Player Divorces with Prenuptial and Postnuptial Agreements

So, what can GCs and CFOs do to minimize risk? While employment agreements, equity plans, and operating agreements are useful tools and required for other valid corporate reasons, they typically do not address these divorce-related issues. However, the good news is that prenuptial and postnuptial agreements can address many of the above risks.

Marital agreements can preemptively address share ownership to avoid the need to transfer shares or the value of shares. This can minimize the risk of equity exposure, company control risks, and any urgent cash flow pressures from unexpected divorce settlements.

Marital agreements can also require mediation that can keep company information private and reduce the sharing of confidential company financial information. The existence of a marital agreement alone can also avoid litigation in the first place.

The GC and CFO Role: From Reactive to Strategic

So, what is a GC and CFO to do? The first tip is to be strategic, rather than reactive. Before a divorce creates real corporate disruption, GCs and CFOs can strategically and proactively identify where divorces can create risk: what happens with equity ownership if it is moved around, how to handle last-minute liquidity planning, how to ensure confidentiality, and how to maintain corporate governance.

GCs and CFOs can raise these issues internally at the appropriate time. This doesn’t mean managing personal lives, but rather ensuring that the company has appropriate guardrails, documentation, and planning in place so that personal transitions do not become business emergencies.

Conclusion: Divorce Is a Governance Issue, Not a Taboo

In summary, ignoring the risk of divorce does not make it go away. It just leads to urgent business emergencies down the road. And we know that divorce is a real risk—approximately 40–50% of marriages end in divorce, as we all know. GCs and CFOs do not need to manage the personal lives of their key employees, but they do need to strategically estimate potential risks and encourage marital agreements where appropriate.

1. Lieberman–Massoni v. Massoni, 215 A.D.3d 656 (N.Y. App. Div. 2d Dep’t 2023).