Lululemon Founder Divorce Without a Prenup: Lessons for California Couples
Lululemon founder Chip Wilson is reportedly divorcing his wife, Shannon “Summer” Wilson, after more than two decades of marriage. What makes the story particularly noteworthy from a family law perspective is not simply the size of the fortune involved. It is that the couple reportedly does not have a prenuptial agreement.
Wilson founded Lululemon in 1998 and has an estimated net worth of approximately $6.1 billion. His assets reportedly include a substantial interest in Lululemon, an approximately 18% interest in Amer Sports, the company behind brands including Arc’teryx, and a significant real estate portfolio. Summer Wilson was also closely involved in Lululemon’s early development, serving as one of the company's earliest employees and its founding lead designer.
The Wilson divorce is proceeding in British Columbia, not California, so California community property law does not govern their divorce. But the circumstances present an important question for California couples:
What happens when someone builds substantial wealth, owns a valuable business, or holds significant investments and gets married without a prenup?
What Happens in California If You Get Married Without a Prenup?
When a California couple marries without a prenuptial agreement, California law determines their financial rights if they later divorce.
California is a community property state. Generally, income earned and property acquired during marriage are presumed to be community property, while property owned before marriage and property acquired by gift or inheritance generally remain separate property.
For someone who enters marriage with a valuable business, investment portfolio, real estate holdings, or other appreciating assets, however, the analysis can become considerably more complicated.
The question is not always simply, “Did you own it before marriage?”
The more difficult question may be what happened to that asset during the marriage.
A Business Can Create Complicated Issues Even If You Owned It Before Marriage
One of the most important lessons from a case involving a business founder is that premarital ownership does not necessarily eliminate every potential community property issue. Suppose you start a company before marriage and own 100% of it when you get married. Twenty years later, the company is worth dramatically more. You may understandably believe that because you owned the company before marriage, the entire business and all of its appreciation necessarily remain your separate property.
California law can make the analysis more complicated.
When a spouse devotes substantial labor, skill, and effort to a separately owned business during marriage, questions may arise concerning whether the marital community has an interest in some portion of the economic benefit attributable to those efforts. These disputes can involve complex tracing, valuation, accounting, and California's Pereira and Van Camp allocation principles. A properly drafted California prenup can address these issues before they ever arise.
A Prenup Can Protect More Than the Value You Have on Your Wedding Day
One common misconception is that a prenup is primarily designed to protect what someone already owns. For entrepreneurs and investors, that is only part of the equation. Consider someone who owns a company worth $5 million when they marry. Twenty years later, the company is worth $50 million. The more important financial question may not be who owned the original $5 million. It may be who has rights to the additional $45 million in value.
A California prenuptial agreement can define how the parties will treat the business, its future appreciation, distributions, retained earnings, sale proceeds, reinvestments, and other economic benefits generated during the marriage. That can be particularly important for founders, physicians, attorneys, real estate investors, executives with equity compensation, and anyone holding assets that could appreciate substantially over time.
What About Income Earned During the Marriage?
Future income is another area where a prenup can make an enormous difference. Without an agreement providing otherwise, earnings during marriage are generally community property in California. For a high-income professional or entrepreneur, decades of earnings, investments purchased with those earnings, retirement contributions, stock compensation, and other accumulated wealth can represent a substantial portion of the marital estate.
A California prenup can change those default rules. For example, spouses may agree that each person's earnings during marriage will remain that person's separate property. They can also determine how jointly purchased property will be treated and establish rules for contributions to joint accounts or household expenses. The objective is not necessarily to keep everything separate. The objective is to decide the rules intentionally rather than allowing California's default rules to make those decisions later.
The Longer the Marriage, the More Important Those Rules Can Become
The Wilsons reportedly married in 2002. A marriage lasting more than two decades illustrates another important feature of financial planning before marriage: small ambiguities can become very large financial disputes over time.
A business may grow.
Real estate may appreciate.
Stock portfolios may compound.
New companies may be created.
Separate and community funds may become commingled.
One spouse may leave the workforce.
The parties' incomes may diverge dramatically.
Assets that were relatively straightforward at the beginning of the marriage can become substantially more difficult to characterize decades later. A carefully drafted prenup creates rules for those future events while the relationship is healthy and both parties can make decisions without the pressure of an impending divorce.
A Prenup Can Also Address Spousal Support
Property division is only one part of the equation. California courts may also award spousal support following divorce. In a long-term marriage involving a substantial disparity in income, potential support exposure can become significant. A properly structured California prenuptial agreement may limit or waive spousal support, subject to California's statutory requirements and enforceability rules.
California imposes special requirements on provisions affecting spousal support, including requirements concerning independent legal representation. This is another reason why simply downloading a prenup template shortly before the wedding is rarely appropriate for someone with significant financial exposure.
Billionaires Are Not the Only People Who Need Prenups
It is easy to read about a multibillion-dollar divorce and conclude that prenups are primarily relevant to billionaires.
They are not.
The same legal issues can arise on a much smaller scale.
A person may own a $500,000 business instead of a multibillion-dollar company. Someone may own one rental property instead of an international real estate portfolio. A professional may expect to earn $500,000 per year rather than millions. A startup founder may own shares that are worth relatively little today but could become extremely valuable in ten years. The underlying planning question is the same:
If your financial circumstances change substantially during your marriage, do you want California's default rules to determine the result, or do you want to establish your own rules before getting married?
Already Married Without a Prenup?
If you are already married, it is too late to enter into a prenuptial agreement. However, California spouses may consider entering into a postnuptial agreement. A postnuptial agreement can address many of the same subjects as a prenup, including property characterization, future earnings, businesses, real estate, debts, and other financial rights.
Postnuptial agreements are different from prenuptial agreements and can receive greater scrutiny because spouses already owe fiduciary duties to one another. For that reason, careful drafting, financial disclosure, independent representation, and the circumstances surrounding execution can be especially important.
The Real Value of a Prenup Is Certainty
The lesson from a high-profile divorce involving billions of dollars is not that every marriage will end in litigation. It is that the financial consequences of marriage exist whether or not a couple signs a prenup. Without an agreement, the law supplies the rules. With a properly drafted agreement, the couple has an opportunity to establish many of those rules themselves.
For California business owners, entrepreneurs, investors, professionals, and couples entering marriage with significant assets or significant future earning potential, that certainty can be far more valuable than the cost of preparing the agreement.
Considering a California Prenup or Postnup?
Niki Tran, APC focuses exclusively on California prenuptial and postnuptial agreements. We assist clients throughout California with drafting, reviewing, and negotiating agreements designed around their particular assets, businesses, income, and financial goals.
Contact our office to schedule a consultation and discuss how a California prenup or postnup can protect your financial future.
This article is for informational purposes only and does not constitute legal advice. The Wilson divorce is reportedly pending in British Columbia and is discussed solely as a general illustration of financial planning issues. California law does not govern their reported divorce.
Get Free Consultation
All content provided on this blog is for informational purposes only. We will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. The information provided here and the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. You should consult a licensed attorney if you need legal advice for a specific problem. The information provided here is not a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.