The Bill and Melinda Gates divorce, after 27 years of marriage, is a warning sign for financial advisors who serve the baby boomer generation and clients that have been married for decades.
The Gates divorce brings attention not only to complexities when high-net-worth clients split, but also to the growing phenomenon of “gray divorce.” That’s the term for couples who divorce in their 50s, 60s or even 70s. Sometimes the two issues are intertwined, as older couples may have accumulated significant assets over the years.
Haleh Moddasser, senior vice president and partner at Stearns Financial Group in Chapel Hill, North Carolina, says the Gates divorce is a data point in the gray divorce trend.
“While money will be no issue for this couple, it is most definitely an issue for other high-net-worth clients who are contemplating divorce,” she says. “For these couples, it is very important for both parties to understand fully the value of the marital estate.”
Moddasser, author of the book “Gray Divorce, Silver Linings,” specializes in working with high-net-worth clients with complicated financial issues, including divorce. She recommends that both partners be knowledgeable about their financial situation.
“Often, especially for couples over the age of 50, only one spouse, typically the male, has an intimate knowledge of the couple’s finances,” she says. “This puts the woman at a serious disadvantage when it comes to a divorce.”
Know Where Your Assets Are
Jody D’Agostini, a certified financial planner with Equitable in Morristown, New Jersey, also encourages clients to be active participants in financial decisions. That means knowing the advisor and understanding where accounts are held. That includes not only brokerage accounts, but insurance policies, bank accounts, annuities and real estate investments, among others.
She adds that a prenuptual agreement is a good idea for high-net-worth couples to sign before marrying. She recommends allowing sufficient time to give each partner the opportunity to understand the terms before the wedding.
“You likely want to catalog assets that you acquired before marriage and include any gifts or inheritance received by either party,” she says. “These should remain separate and not be commingled, so that you will not be attached in a divorce. You should take an inventory by keeping statements for all assets right before the date of marriage.”
D’Agostini points out that it’s not too late for couples who did not sign a prenup.
“If this was not done, you can try to complete a postnuptial agreement spelling out what would happen if there was a future divorce,” she says. “This is often more difficult to do, but also could be more enforceable as there is not the emotional component pre-marriage.”
She notes that Bill and Melinda Gates did not have a prenuptial agreement.
Moddasser adds that a prenup describes what will happen to the couple’s assets in the event of a death or divorce. In a second marriage where one or both partners have children, “it’s especially important to protect assets for the children of each partner,” she says.
A properly written agreement will also address financial needs of a surviving spouse.
Planning for a Possible Divorce
Nancy Hetrick, founder of Smarter Divorce Solutions in Phoenix, has seen the consequences when couples fail to prepare for the possibility of divorce. Her own divorce also informed her approach to financial planning.
“Being aware of the risks resulted in recommendations for postnuptial agreements, estate planning changes, and extra considerations for inheritances and potential separate property treatment,” she says.
Hetrick is the author of “Divorce Is Not For Dummies: How To Cover Your Assets” and “Divorce Financial Planning: Building a Successful Niche Business.” The latter is aimed at advisors who want to build a practice as divorce financial analysts.
She gives an example of a client married 35 years, with substantial assets, who is now divorcing her husband.
“She suspected for years that he was being unfaithful but chose to never bring it up,” Hetrick says. “Now that they’re divorcing, and she added me to the team as her financial specialist, after hours and hours of analysis and review, it came to light that since 2016, he spent over $2 million on extramarital activities.”
Hetrick will be asking the client’s husband for reimbursements. “But the reality is that money is gone and will never be available for the couple to split. Needless to say, she’s devastated. Ignorance was certainly not bliss,” Hetrick says.
To avoid nasty surprises in a divorce, Moddasser recommends a couple take steps — like creating a financial plan — in addition to having a prenup agreement.
“I have often had one member of a couple confide they are considering a divorce,” she says. “In such situations, we often do some pre-planning by creating a financial plan with various settlement options.”
What’s Possible in a Settlement
Armed with this knowledge, a spouse contemplating divorce has a better sense of what is and is not possible in a divorce settlement.
Divorcing couples could pick up a tip from Bill and Melinda Gates when it comes to their stated goal to continue operating their foundation jointly. Not that most couples have a foundation, but it’s worth considering how charitable giving affects divorce planning or vice versa.
Moddasser advises clients contemplating divorce to review their philanthropic donations, with an eye on their new income-and-expense reality.
“Be wary of giving too much away,” she says. “What may feel like a small fortune as a couple may now only be barely sustainable for each partner independently.”
She also cautions individuals who are getting a divorce to review their investment asset allocations.
“When working with women investors, we often find they are more reluctant to invest their assets in the stock market, opting instead for ‘safer’ investments such as (certificates of deposit), money market or cash,” Moddasser says.
However, she adds, with less money post-divorce, it’s important for most people to invest for growth, within the parameters of their own tolerance for market volatility.
D’Agostini points out several other challenges of late-in-life divorces: “There is less time to recover financially, emotionally and socially,” she says.
“By later in life, the couple has often solid friendships that have been cultivated over the years,” she adds. “These are now disrupted as people are not sure to whom they should be extending invitations to and sharing life events with.”
The entire family can be in upheaval, and even adult children may not be not sure how to navigate the changes without taking sides.
“This can be emotionally unsettling,” D’Agostini says. “I highly recommend good therapy to make sure that you heal yourself and move forward as best as possible.
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What Financial Advisors Can Learn From the Bill and Melinda Gates Divorce originally appeared on usnews.com