When billionaires Bill and Melinda Gates announced their divorce after 27 years of marriage, a media frenzy ensued over the news, including how their stunning level of wealth would be divided. Although the complications of divorce are magnified with the breakup of this power couple, their divorce underscores many important lessons that couples generally are well-advised to heed.
Lesson # 1: Have a prenuptial agreement!
Bill and Melinda Gates did not have a prenuptial agreement. Bill Gates was already a multi-millionaire when he married Melinda (he started Microsoft in 1975 and got married in 1994) and could presumably have protected assets acquired prior to the marriage (including his interest in Microsoft) with a prenuptial agreement. The Gates did sign a separation agreement prior to filing for divorce in Washington State. However, had they not signed a separation agreement, in the absence of a prenup, community property states like Washington State will generally consider the couple’s marital assets acquired during the marriage are owned equally by both spouses.
It’s true that no couple wants to think about divorce when planning a wedding, but that the better way to think of a prenuptial is that it can help start the marriage on a strong footing based on mutual understanding. The wealthier spouse may feel confident that his or her assets are secure, while the less wealthy spouse may be relieved to receive some property and/or alimony arrangement regardless of the success of the marriage.
Lesson # 2: Update estate planning.
Whether you are Bill or Melinda Gates or anyone else in the process of divorce, it is very important to attend to estate planning while divorce is pending. If one of the parties dies before divorce is finalized with a will that reflects happier times, the provisions of that document will likely kick in, regardless of whether that reflects current intent in light of the impending divorce.
While changing beneficiary designations on some forms of assets might have to wait until the divorce is final, wills and revocable trusts usually can and should be updated pending divorce at least to reduce the amount passing to the survivor to no more than is required pursuant to state law or a marital agreement. If the Gates’ or any other divorcing couple’s financial powers of attorney and health care designations each name the other to make important health care and financial decisions and that’s no longer their intent, those documents should also be updated to reflect individuals they now wish to hold those roles. Giving your ex-spouse or soon-to-be ex-spouse the ability to pull the proverbial plug is not typically anyone’s first choice…
Lesson # 3: It’s just me and you?!
Bill and Melinda Gates are part of the soaring number of baby boomers getting divorced after many years of marriage, referred to as grey divorces – divorces between couples over 50 years old, when the children have left the house. This phenomenon can be particularly hard on women. While this obviously does not affect Melinda Gates, many other women have been out of the workforce for an extended time caring for children, often making it difficult to reenter the workforce, and even if they do, will frequently earn less than the breadwinner spouse. Women in this position can be dependent on an ex-spouse for financial support and that should be factored into settlement negotiations.
Lesson # 4: It’s all about the team
Although few couples maneuvering through divorce will face the prospect of disentangling from a balance sheet as vast and complex as the Gates, their situation serves to highlight how complicated it can be to coordinate an asset split of myriad interests, which can include business and other illiquid assets. Most people do not have the vast financial resources available to the Gates. That means you need to have a thoughtful long-term plan in place to ensure that the alimony/settlement proceeds will sustain your lifestyle. A financial advisor, in addition to helping you get organized with your financial balance sheet, can also assist in running cash flow projections, stress testing a portfolio, and modeling projected rates of returns, inflation assumptions, and upcoming outlays to give you peace of mind for the future. The Gates divorce serves as an important reminder that a trusted team of experts, including your financial advisor, family lawyer, estate planning attorney, accountant and insurance or other experts can help navigate the process in a coordinated manner that can best position clients for a successful future.
Sharon L. Klein is President of Family Wealth for the Eastern U.S. Region at Wilmington Trust, N.A and heads Wilmington Trust’s National Matrimonial Advisory Solutions Practice.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances. Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation. © 2021 M&T Bank Corporation and its subsidiaries. All Rights Reserved.