Mega-divorces of Bill and Melinda Gates and Jeff and MacKenzie Scott weren’t just shocking because of the decades the billionaire power couples spent together in the public eye. The other attention-getting factor: Neither had a prenup.
Prenuptial agreements are relied upon by couples of all income levels to determine the allocation of assets and debt post-divorce. While they may not sound particularly romantic, these agreements are good insurance against possible future stress and nasty legal disputes.
For high-net-worth couples, though, prenups are essential. Otherwise, you are left to the mercy of state laws to determine who gets what and how much in the event of a contentious split. If one spouse grew wealthy during the marriage, they are likely to see their assets considerably diminished. Both the Gates, Bezos, and Scott lived in Washington State, a “community property” state where assets can be divided 50/50 between spouses. Scott settled for 25 percent of Bezos’ fortune, taking $38.3 billion. The Gates’ divorce settlement has remained confidential, although it’s clear from her subsequent public stock sales that Melinda received an amount that’s at least in the billions.
Millionaires (and billionaires) also typically have more complicated assets than the typical couple – such as extensive real estate, business holdings, yachts, fine art, valuable antiques, or offshore accounts. Trying to unwind such a wide range of comingled assets would be a headache in the best of circumstances, and an arduous undertaking in the emotionally sensitive time of a divorce.
Many other executives, founders, and other high-earners are learning from these devastating missteps though, and opting for prenups. Here is a brief overview of the components that spouses should be considering.
Remember, prenuptial agreements must be fair and transparent; all assets and debt must be disclosed to your spouse. It's also important for each side to be represented by an experienced attorney who can guide them through the process and protect both spouses' rights and future livelihoods.
Property division: As much as you adore your future spouse and don’t want to think about potentially splitting up, it’s essential to walk through the mental process of knowing what property and other assets will be shared and divided in the event of divorce. That includes real estate, personal property, investments, business holdings, and retirement accounts.
Asset protection: At the same time, think about the assets you are bringing into the marriage and how you will protect them in the event of a divorce. You should specify in a prenuptial agreement how these assets will remain separate property. Remember that your spouse may have a claim to comingled assets.
Debt allocation: Similarly, a prenup should specify what debts are subject to being divided between spouses, such as mortgages and other jointly accumulated debt, and what debts will be borne individually by each spouse. For instance, a higher-earning spouse would probably not want to end up stuck with his or her former spouse’s student loan or credit card debt.
Custody and support of children: Prenups should also outline custody arrangements for minor children. Account for who will have primary custody of children from the marriage and what financial support the children will need, including education expenses, medical care, extracurricular interests, and any special needs the children have.
Spousal support (alimony): You should also consider whether the higher-earning spouse will pay a lower-earning spouse alimony, and if so, how much and for how long. State laws also come into play when determining what rights a lower-earning spouse might have to alimony. But you may also want to consider what seems most fair.
Inheritances and gifts: Have a trust fund coming your way? Or is there a possibility of a sudden windfall? You will want to address how it will be handled in the event of a split. Otherwise, it is sure to become a flashpoint in any contested divorce.
Business interests: Be clear about ownership of all of your business concerns or holdings, including future ownership, control, or valuation.
Marital home: When considering how real estate and other assets will be divided, pay special attention to the marital home, which can be an important consideration when preserving the comfort of children. Decide what happens to the marital home in the event of a divorce and whether there may be potential buyout options.
Personal property: Jewelry, paintings, vehicles, and any other personal property of significant value should be explicitly addressed in prenuptial agreements.
Career impacts: Marriage or divorce may impact one of both spouses’ career opportunities positively or negatively. The agreements should address this issue and could factor into spousal support or allocation of assets.
Financial responsibilities: To the extent you can be clear about this role, specify who will be primarily responsible for joint accounts, household expenses, and financial planning during the marriage. Also, be clear about who will handle ongoing financial responsibilities in the event of a split.
Estate planning: Address provisions for estate planning, including wills, trusts, and beneficiary designations for all assets. To the extent your joint wealth will be passed along to heirs, determine who will have responsibility for making those decisions.
Dispute resolution: Like all contracts, prenuptial agreements should expressly detail how and where any disagreements should be resolved, whether through arbitration, mediation, or litigation. Disputes can arise between parties to agreements of all types, and it is best to plan ahead for this possibility.
Forfeiture clauses: A marriage is a partnership, and if one partner is not living up to their promises, it may make sense that the benefits they receive would be reduced. Forfeiture clauses may be incorporated into prenuptial agreements to shift allocation in the event of certain conditions, such as a spouse’s infidelity.
Non-disclosure agreement: Last but certainly not least, prenuptial agreements should include non–disclosure clauses, especially for millionaire or billionaire couples. You would not want a soon to be ex-spouse disseminating your financial information or other details covered by the prenup. Be sure to include wording that forbids such dissemination to protect both of your reputations.