Divorces Are Expensive When You’re Rich

Breakups are always difficult, but that word takes on a meaning of its own when there are millions (or billions) of dollars involved

Vikram Barhat 14 February, 2022 | 12:14PM
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Paper broken heart

When billionaire mogul and Amazon founder Jeff Bezos split with his wife of 25 years MacKenzie Scott, she walked away with US$38 billion in Amazon stock.

When the split occured, Bezos did not have a prenup agreement, which probably makes him an outlier among the ultrawealthy. From footballers to movie stars, prenuptial agreements have long been a freature of high profile marriages, as they allow the great and the good to guard their wealth in the event of a marital breakdown.

When marriages involving high net worth individuals fall apart, there are millions of dollars at stake. Undeniably, divorces amongst the wealthy are different from those among the middle classes. Indeed, when legal expenses aren't as much of an issue, people can engage in all-out battles, rather than coming to a swift compromise.

But while most divorce battles are sparked by the same issues in any marriage – infidelity, damaging allegations, or mutual agreement – the potentially massive financial implications for the rich really do raise the stakes, and, with it, the tension.

Here are some of the issues that make divorces among the rich a unique challenge.

The Bill

High-net-worth people have greater wealth, which could result in a costly legal battle.

The rich have more assets to divide and the more you have, the more you have to fight over. They may have complicated trusts and corporations, investment properties, vacation homes, and assets in different jurisdictions.

There may also be the need to consider larger support payments and lifestyle needs. 

Children of wealthy families may attend expensive private schools, and often receive private lessons in sports or extracurricular activities. Throw in after-school care, live-in nannies, and others expenses, and it starts to get complicated. If business assets are involved in supporting these considerations, things can get messy, particularly if the business is jointly owned or run by the spouses separating.

And the higher the stakes, the bigger the support staff you may need to ensure your financial and emotional wellbeing. The rich often use larger team of experts, including lawyers, mediators, counsellors or therapists, accountants, investment advisers, certified divorce financial analysts, and others. All that costs money.

Keep it Yours

If mediation fails to produce an amicable resolution, a legal settlement may be the only way to go. But if and when things go to court, there are many legal and financial angles to consider. As such, mediation could be one way to foster the process of dividing assets, access to children, support, and living arrangements. Talking it out may work better than fighting it out in front of a judge.

If you fall into the high-net-worth category, a pre-nuptial agreement is of special significance as a hedge against wealth erosion in the event of a marital breakdown. Such contracts clearly spell out who gets what. There can be clauses added – like the US$500,000 infidelity clause in the Justin Timberlake and Jessica Biel prenup – where a certain amount can be deducted due to adultery or other transgressions. 

A good prenup should outline how assets will be divided in a divorce. For example, anything earned or acquired during the marriage could be split in half, but assets acquired before the marriage will likely remain with the owner. The contract could also serve to protect certain properties, like a business, and set out child and spousal support guidelines.

That said, a marriage contract may not be enough. There are other things the rich do to plan for the worst.

With blended families now more prevalent, it may be prudent to update your will to include spousal trusts to ensure your spouse isn't allowed to sell assets like your matrimonial home, thus protecting your own children's inheritance.

Also, you might consider holding inheritance money separately so it could be deemed "outside" of your marriage. In simple terms: don't put the downpayment your late parents gave you for a property into a joint account. Keep it separate, in your own name, and have a paper trail to prove the money came from your parents as an inheritance.

A Toss of the Coin

Litigation related to high-net-worth cases has an additional wrinkle of complication. Since money often isn't initially an issue, a lot of high-net-worth divorces end up in court. However, there's no guarantee of a favourable outcome, no matter how strong you believe your case is.

If not carefully presented, the adjudicator can make a judgment call that may not be in your favour. It may be best to settle outside of court, if that is possible.

Naturally, no one wants to go into a marriage thinking of the worst outcome. However, sometimes a divorce is in the best interest of all those involved. When that day comes, it’s important to ensure your interests are protected. In matrimony, like in life, it's a good policy to hope for the best and prepare for the worst. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Vikram Barhat  is a Toronto-based financial writer specialising in investing, stock markets, personal finance and other areas of the financial services industry.