Startups and Divorce

Colorado is home to many startup businesses that are not publicly traded.  Boulder is one of the top cities in the United States for startups.  Representing owners of equity interests in non-public companies is particularly complex and challenging because of the problems associated with valuing the interest for dissolution of marriage purposes.  Startup equity owners routinely are required to sign non-disclosure agreements (NDA’s) with their company to protect against third parties obtaining information about the financial statutes of the company.  These non-disclosure agreements can have severe financial consequences to the equity owner and the company if violated.  Disclosing insider information can also run afoul of the Securities and Exchange Act of 1934 which can involve criminal charges.  At the same time, the equity owner’s spouse (a third party) is going to want a great deal of financial information regarding the company in order to value the equity interest.  Under C.R.C.P. Rule 16.2, Colorado spouses have duties to provide financial information to each other.  Withholding this information prejudices the non-equity owning spouse and opens the door to sanctions. Representing parties where one or both spouses own equity interests in non-public startups requires finding ways to provide necessary information while, at the same time, protecting the equity owning spouse from the effects of violating a non-disclosure agreement.  There are ways to accomplish this but the task is not always easy.  Early discussions with the attorney representing the startup company are usually helpful.  Cooperation and understanding between the spouses and their lawyers are always necessary.