At the start of this year the world’s wealthiest couple announced they are divorcing.
Jeff Bezos is the founder and CEO of Amazon and his soon-to-be ex-wife MacKenzie, met when they worked for a New York City hedge fund. Married for 25 years with four children, their announcement created a media frenzy for a few key reasons – the significance of Mr Bezos’ net worth (said to be over $130 billion), that there was no prenuptial agreement in place and Mr Bezos is been reported to already be in a new relationship.
What will happen next?
In the US, the ‘communal property regime’ dictates how assets are divided upon divorce and although our laws are different here in Australia, there are some important considerations that people with significant wealth should be aware of beyond the decision to divorce or if they are embarking on a new relationship.
Entering new relationships
People entering a new relationship who have already accumulated significant wealth, whether it be through an established business or whether they are likely to receive a large inheritance or other windfall, should consider whether they should enter into a Financial Agreement (more commonly known as a “prenuptial agreement” or a “cohabitation agreement”, is something they should put in place. This type of agreement sets out the financial arrangements which would apply in the event of a separation or a divorce.
For Mr Bezos, given that there was no prenuptial or financial agreement in place before or during his marriage, this will impact upon how a property settlement is negotiated and/or determined. Despite Amazon being founded after they were married, the division of property has potential to impact on his shareholding of the businesses he has established and whether he will continue to have a controlling interest. Considering the potential implications, we would expect that Mr Bezos’ ought to consider putting into place a Financial Agreement in place in any new or future relationship.
What can we learn from the Amazon CEO’s divorce?
While many look to Jeff Bezos as a source of innovation and inspiration in the business world, in this instance, his current life circumstances highlight the possible advantages of pre-nuptial agreements and their impact on property settlement process as well as their use as a tool in protecting his wealth (and long-term his children’s wealth).
A prenuptial agreement, as it’s title infers, is a financial agreement finalised before marriage, however a financial agreement can also be put in place when couples are living together, even if not married or intending to marry. These type of Agreements set out and defines where each person in the relationship would stand financially if the relationship doesn’t continue. The agreement can also deal with financial arrangements to apply during the relationship.
If you are an accountant, financial planner or a lawyer advising in estate planning, we recommend you explore the option of a Financial Agreement with clients with considerable assets to protect by making them aware of such agreements when (and ideally before) they enter into new relationships.
As the exercise of negotiating and creating a financial agreement is not a simple one, having the discussion early and obtaining legal advice about their options will assist your client to then do a cost-benefit analysis based on what they are looking to safeguard, to determine if a Financial Agreement will be beneficial in their circumstances.
How is a financial agreement negotiated?
The terms are negotiated by the parties to the Agreement and can be tailored to take their individual circumstances into account with the assistance of legal and other advisors.
The first step in considering the terms of a financial agreement is to consider what things may look like for you if there was no agreement in place by undertaking an analysis of the following:
- What assets, liabilities and superannuation both parties have;
- What contributions both have made or propose to make (initially and during the relationship); and
- What both parties’ future needs are or may be in the future.
Often people are looking to safeguard or keep separate their pre-existing assets when coming to a relationship, often called their ‘separate’ property or categories of assets such as an inheritance or business interest. This effectively changes the approach to how the property settlement would be approached if no agreement was in place. For example, a certain category of asset such as a business that existed prior to the start of a relationship or pre-existing property may be quarantined, so they are protected and excluded from being divided upon the relationship ending.
When a financial agreement should be considered
The lesson in all of this is that if you are assisting a client who has accumulated significant wealth and they are seeking assistance with their financial affairs, it makes sense to make them aware of this safeguard as an option. A discussion with a specialist family lawyer will enable them to do a cost-benefit analysis and make an informed decision. It may allow them to have negotiations at the front-end of the relationship, rather than later on, after a separation, where negotiations may become more difficult.
So if a client with significant wealth is looking at entering a marriage or a defacto relationship the question to pose is: ‘should you try to minimise risk by considering a financial agreement as a potential ‘insurance policy’? ’ The following step is to speak to a family lawyer who specialises in complex financial agreements and determine if the possible benefits outweighs the outlay of having the agreement negotiated and prepared. The first step though is to make them aware of this potential protective measure.
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Phillips Family Law is an award winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your decision making process, we can make you aware of your options. To discuss your situation confidentially phone +61730079898 or secure a time by clicking here.