The Jeff Bezos Divorce & Its Potential Financial Implications
Last week, Amazon CEO and the richest man in the world, Jeff Bezos, announced that he and his wife Mackenzie Bezos are filing for divorce. They were married for 25 years and tied the knot before Mr. Bezos amassed his fortune with the founding of Amazon.
Many have speculated as to whether or not the couple had any sort of pre or post nuptial arrangement — there is simply no way to know. But whether or not they had a prenup, Jeff Bezos is still likely to lose 50% of his fortune in the divorce since most prenuptial arrangements only cover the assets that exist when you enter into a marriage. Whatever you earn while you are married is split 50/50 in many states, including Washington (where the Bezos’s are filing for divorce) which is a community property state. Postnuptial agreements can cover assets gained after marriage, but they are less common than prenups.
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This situation raises the importance of considering marriage from a financial planning perspective, and that begins with not going into it with rose-colored glasses. Marriages often end in divorce. Jeff and Mackenzie are presenting a united and amicable front, but whether or not a divorce is amicable, the process is grueling both personally and financially. And it’s even harder if you don’t have any arrangements in place to define what happens to assets accumulated by each spouse during the marriage.
Why Prenups Are Important & Who Should Have One
While we never go into a marriage wanting it to fail, being prepared for that potential outcome is an important step to take. A well-written prenup is a great way to ensure that both partners are on the same page when entering into a marriage, and ultimately protect the wishes of both parties if a divorce should take place. Prenup agreements can be customized and are different in each state, so make sure you discuss your specific circumstances with your financial advisor and estate planning attorney.
We often get asked as advisors: who should have a prenup? Am I a good candidate for one? The answer is almost always yes. It’s a common misconception that prenups are just for couples who come into a marriage with one spouse being significantly wealthier than the other. However, a prenup is something almost any couple with assets or debts should consider, even if they are on a relatively level playing field. If one person in a marriage has major debts and the other does not, for example, a prenup can provide guidance on who is responsible for those debts going forward.
More Important Than A Prenup: Talking About Money as a Couple
I am frequently surprised how often we talk to people who have no idea what their partner or spouse holds in terms of assets or wealth. Many people we talk to are also not aligned with their partner on saving and spending priorities.
Couples will almost always have differing perspectives on money to some degree, and not talking to your partner about money can have serious consequences. Outside of “basic incompatibility” and infidelity, money is the number one cause of divorce. But usually it’s not actually money that causes the rift, it’s not being on the same page about money and not talking about it.
When you get married, you are legally tying yourself to another person, so it’s important to understand not only their financial situation, but also their attitude towards money in general. Here are some basic discussions you should consider having with your partner:
- Level-setting on the current state of your individual assets/wealth
- Any expected future windfall events such as an inheritance or unvested options (for example, the Bezos children will probably want to put a provision in their own prenups regarding their inheritance)
- Sit down and set a budget together and discuss how to treat both necessary and discretionary spending. Do you have a joint account? Do you keep your finances separate?
- What are your financial priorities? Saving for a child’s education? Buying a second home? Early retirement?
Other Financial Consequences of Divorce
Divorce can be very expensive from not only a division of assets perspective, but divorcing couples can often face hefty tax bills if they liquidate taxable investment accounts, which are taxed as capital gains. Spousal support can also be expensive and complicated if it was not addressed in a prenup. Spousal support differs by state and even by judge, but oftentimes the resource-providing spouse will be the one facing a heftier financial burden. This can get complicated, as income at the time of the divorce does not always correlate with personal net worth. Legal costs associated with divorce are another financial implication of parting ways with a spouse.
Although we never want or expect a marriage to end in divorce, planning ahead is your best line of defense against the financial hardships associated with it. You don’t need to be marrying someone of different financial standing than yourself to talk about the possibility of a prenuptial agreement – most couples are good candidates for exploring one. And drawing up a prenup gives people a chance to do what is most important for the health of a relationship from a financial standpoint: talk about money.