The Gates divorce: Lessons for financial advisers

Advisers should note that no matter how stable a relationship may seem, contingencies should be baked into estate and financial plans in case of divorce, especially for wealthy clients, experts say.

The divorce of Bill and Melinda Gates, the most prominent couple in technology, after 27 years of marriage, has drawn new attention to the lessons financial advisers can learn from watching the rich and famous divide their assets.

The announcement Monday that the co-founder of Microsoft Corp. and his wife are splitting and the subsequent division of their diverse portfolio of business and real estate holdings could have implications for the technology industry. Details are scarce on how the situation will play out, but the couple does plan on remaining co-chairs and trustees of the Bill & Melinda Gates Foundation.

The divorce will mark one of the largest division of assets by a couple at an estimated $146 billion, according to the Bloomberg Billionaires Index. The split of the Gateses’ assets falls just behind the approximate $157 billion breakup of Amazon.com Inc.’s Jeff Bezos and MacKenzie Scott.

While advisers’ married clients won’t be billionaires on the scale of the Gateses or Bezoses, there are common threads for all families going through a divorce: the need for privacy and the opportunity to heal and move forward personally and financially, said Joannie Bozek, chief fiduciary officer of Clarfeld Citizens Private Wealth.

“Successful advisers constantly work to prepare their clients for these needs in times of cohesion or disruption,” Bozek said. “Their advice regularly includes comprehensive financial planning for adults and future generations, goals-based investment strategies, and trusts and other legal vehicles that protect wealth and secure privacy.”

No matter how stable a relationship may seem, contingencies should be baked into estate and financial plans in case of divorce, especially for wealthy clients, experts say.

“[Advisers] can learn a lot from Bill and Melinda Gates as they disclosed they had been planning the announcement and the divorce for quite some time,” said Andrew McNair, president of Swan Capital. Planning these situations out ahead of time instead of letting emotions rush client couples into settlements and disputes is a key lesson here, he said.

“When both parties are rushed by their advisers, even despite a successful equitable distribution for two, the end result is both parties feeling like they haven’t been heard and haven’t had time to breathe,” he said.

Another factor that can complicate financial planning in wealthy divorces is whether the couple has children, McNair said. Creating an open dialogue about each spouse’s feelings about legacy planning is essential in the divorce.

“As financial advisers, we have to ask each spouse how important it is to leave money behind to your children,” he said. “If they are both on the same page, it makes the planning a lot easier.”

McNair suggests asking clients whether a highly publicized divorce like the Gateses’ will change their views on leaving money behind. “As financial advisers, we must not push the burden on one spouse on giving a legacy to the children,” he said.

Since most of the Gateses’ holdings are owned by their foundation, that reduces their tax exposure, McNair said. “Families should consider these benefits if they want their benefactor to ultimately be charity instead of the government.”

Advisers should also increase their education around gray divorce — separations among couples who are 50 and older, McNair said.

“If we are wise, we will always seek to be the financial adviser not of one spouse, but a financial adviser to the family as a whole,” he said.

The big takeaway: Divorces are emotional events, and advisers need to manage those emotions and help clients to focus on the strategies and tasks that will yield the best results for achieving their goals and their best financial life, said Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits.

DIVISION OF ASSETS

For many divorcing couples, the challenge is not so much the process of splitting the assets but determining how they are to be split between the two parties, Scudillo said. It can be especially difficult in a case like the Gateses, whose assets will include billions worth of Microsoft stock and hundreds of millions in real estate, in addition to collectibles like cars, books and artwork, and holding companies.

“Updated valuations for each asset will be needed, followed by the paperwork and filings to appropriately split the assets in accordance with the final divorce decree,” he said. “There will also be significant time devoted to follow-up and providing information and guidance during the process to ensure that everything is done accurately.”

It’s also important for advisers to remember in these cases that division of assets during a divorce is very state-specific, said Kalimah White, vice president and wealth Strategist at TD Wealth.

For instance, it may be best to advise clients with significant assets coming into a marriage, regardless of gender, to establish a self-settled asset protection trust in a jurisdiction like Delaware or Nevada, White said.

“Such trusts may prohibit access of a divorcing spouse if set up prior to marriage or in states like Nevada, even during marriage,” she said. “Also, having a prenuptial agreement or at the minimum a postnuptial agreement may be helpful to protect a spouse from losing significant assets in a divorce.”

The Gateses’ division of assets will not be based on a prenup. Melinda Gates filed a petition for divorce in King County, Washington, and asked a judge to dissolve the couple’s marriage based on a separation contract. However, financial details were not included in the publicly available documents.

A separation contract is a postnuptial agreement that is signed when the two parties are considering a divorce but are legally married.

Washington law may offer some clues to how they divide their assets, said Thomas Ajamie, managing partner at Ajamie. Washington is a community property state, so anything acquired during a marriage is considered equally owned by both partners, but that doesn’t necessarily mean the fortune would be split in half.

Ajamie, who has experience with divorces of wealthy clients, emphasized that because the couple has such extensive resources at their fingertips, the lawyers and financial advisers in charge of dividing their assets could finish the job in three to five months, he said.

“That’s assuming it hasn’t started already,” Ajamie said. “They may have started the process before the announcement.”

The division of assets will require some legwork by lawyers and advisers, but in the Gateses’ case the sheer size of assets “dwarfs the technicalities,” said David Phelps Hamar, managing director and head of wealth advisory and family office services at Chilton Trust.

“This is not just a normal high-net-worth divorce, because the numbers are so big, it’s clear that both parties are going to have sufficient resources after this,” Hamar said. “There’s no zero-sum game that requires any kind of precision.”

“In a smaller divorce, the average practitioner who may be working with just high-net-worth or ultra-high-net worth couples, those technicalities matter more,” he said.

Correction: An earlier version of this story incorrectly reported the Bezoses’ assets at $35 billion. The couple was estimated to have $157 billion in assets at the time of their divorce.