The $35 Billion Divorce: Where Advisors Fit In When A Marriage Ends
Celebrity gossip columnists have been working overtime since early January when Jeff and MacKenzie Bezos announced via Twitter that their marriage was ending. It’s somehow fitting that one of the most publicized divorces in recent memory, involving the world’s wealthiest man, ended with the most expensive divorce settlement ever. When the dust settled, the now ex-wife of the Amazon founder and CEO revealed that she was leaving the marriage with roughly $35 billion in her pocket.
As an advisor or agent, you’re probably wondering what this has to do with retirement planning, life insurance, or anything else related to your profession. It’s safe to assume that billionaires don’t sit up at night, worried about a steady stream of retirement income. However, this is a concern that has probably resulted in sleepless nights for many of your clients. After all, that’s why they came to you, isn’t it? That’s why you worked so diligently to outline a plan that would alleviate those concerns, right? But what happens to that plan after a divorce?
When Clients Divorce
It’s been said that there are only two ways to end a marriage – death or divorce. The reality of being an advisor is that, eventually, you’ll have to help clients get through one or the other. Unless, of course, that client is worth billions of dollars. They might not need much from you in either case. For the rest of us, divorce can turn into a nightmare. Aside from the emotional impact, there are legal fees, moving expenses, and countless other loose ends to tie up. As their advisor, some of those loose ends will involve you.
Divorce laws differ from state to state. This is why it’s important that advisors are familiar with those laws before getting involved. It’s also important to decide if you even want to get involved, especially if you don’t have any specialized training financial divorce planning. There’s also the personal relationship you’ve established with both parties to consider. Beyond that, there could be conflicts of interest or other legal issues that might arise.
That said, it’s possible that a divorced client will come to seeking advice on how to move forward. Especially if they weren’t as involved in the family’s finances as the other. This situation might call for you to provide some education and guidance.
Following the divorce, the client will likely want to remove the ex-spouse as the beneficiary to any life insurance policies or retirement accounts in their name. However, this might be the furthest thing from their mind in the weeks and months after the dust settles. This would be an appropriate occasion to offer a policy review to revise how the beneficiaries are restructured.
Social Security Options
Your client might not be aware of their Social Security options. Under certain conditions, they may be able to collect benefits based on the ex-spouse’s work record. Doing so will not reduce the benefits the client’s ex-spouse is entitled to receive and could possibly be more advantageous than claiming based on their own work record. Check SSA.gov for updated rules pertaining to divorce.
If one spouse has a 401(k) or similar employer-provided pension plan, the divorce agreement may include a qualified domestic relations order. The QDRO determines how the account is split between the two parties. While the lawyers need to fight that battle, advisors should help make sure the recipient can make an informed decision on how to handle those assets. The QDRO might state that funds are transferred from the 401(k) into an IRA. Depending on the situation, this might be the better long-term option. If the divorce is causing financial hardships, the recipient needs to know that they can collect the money directly without incurring any early withdrawal penalties.
Picking Up the Pieces
Even the most amicable of divorces can leave one party with more pieces to pick up than the other. Jeff Bezos agreed to the $35 billion settlement, but still has around $110 billion more in the bank and his company. In short, MacKenzie was left with the short end of a very, very big stick.
When a recently divorced person starts to put those pieces back together, their short- and long-term financial outlook should be part of that puzzle. This is where an advisor can step in to help. A recently divorced person may need guidance with setting up a new monthly budgeting and savings plan. Or advice on how to best manage any assets or property they got in the divorce. This could also be the right time for a complete reassessment of their goals and how to achieve them.