Timing Behind Gates Divorce Can’t Be Accidental

Extremely cordial split telegraphs a lot of negotiation behind the scenes but the lawyers evidently couldn’t wait one more day.

Bill and Melinda Gates were the world’s richest couple for most of their decades of marriage. They had all the time and incentive in the world to organize their assets for a potential split.

The fact that today people are debating whether they even had a prenuptial agreement is evidence of the seamless ways real money circulates.

But money still matters to the two of them and their long-term agenda. That’s probably the only reason they’re formalizing a split at all.

No Need For Fighting

There’s not going to be any drama in the Gates divorce.

Some say there was a prenup and others point out that the petition doesn’t make reference to any external documents. It doesn’t matter.

The Gates are so rich that wrangling over an extra billion dollars here or there isn’t going to make an appreciable impact on either partner’s separate life.

They’re all about their foundation and its work. Their kids will inherit what’s left behind, whether it’s from one parent or the other.

The only thing that really changes from a financial perspective is the way the assets are titled in the meantime.

Community property they accumulated in their time together splits. That includes Microsoft stock he acquired since 1994.

Back then, every share was valued at less than $4 not counting splits. Assigning some of it to her doesn’t really bend the profound wealth curve much at all.

The cost basis doesn’t even change as long as nobody sells. Gates already diversified the family portfolio decades ago, so there’s no need to liquidate massive positions on either side.

Berkshire Hathaway is really more of a tracking stock for dynastic wealth than a trading vehicle anyway.

The other core family holdings pay dividends. Depending on the initial entry point, Bill and Melinda are probably bringing in $300 million a year without realizing a single cent of capital gains.

If Bill needs more than $150 million to satisfy his lifestyle every 12 months, he’s got some big secrets. Likewise, people I know who’ve worked with Melinda would be shocked to hear that she needs that much to pay her regular bills.

More Blockbuster Splits Ahead

They’re still leading the way on the Giving Pledge and funding massive philanthropy through the Gates Foundation as well as the associated trust.

At this point, they’re both committed to that project. Taking money out of the foundation in order to “buy out” either partner doesn’t line up with their known motivations.

What they both love is fighting disease. The marriage was evidently “broken” long ago, but the mission is what keeps them together.

And in that scenario, there’s no reason not to keep the marriage together as a legal instrument as long as it serves that mission.

There must have been a reason to try to make it work. Now there’s a reason to let the marriage go.

Did their lawyers get a whiff of the tax environment changing in the near future? Any looming wealth tax would almost certainly punish extremely large fortunes more than smaller ones.

An equitable divorce turns a large fortune into two smaller ones. If the Gates lawyers structured their separation right, this is a chance to carve out the biggest possible exemption to the biggest threats they see.

What are those threats? A larger estate tax? Closing charitable loopholes? Even a higher dividend tax rate could take hundreds of millions from the Foundation in order to feed the IRS.

The Gateses want the Foundation to keep every dollar in the long haul. Giving one partner (probably Melinda) the biggest possible slice of the family fortune that avoids the worst tax liability is a golden opportunity.

But they evidently feel some urgency. Stay together too long for convenience and Washington will take the opportunity to restructure the accounts away from you.

This is what amounts to a do-over on the estate plan, a reset. And as we all know, the tax situation is fluid so you need to take advantage of every loophole you can find before it closes.

Lock it in. That’s what this divorce does for a generation of tax assumptions that may be ending soon.

I think we’ll see a wave of these divorces before the clock ticks out.

Watch what the Gates lawyers do. That’s the best plan they could come up with, based on the intelligence they’re getting out of Washington.

For that matter, the Foundation is so powerful that the plan they put together signals what they’re willing to accept. The White House may take its cues from this settlement, rather than the other way around.

Life will go on for both Bill and Melinda, probably close to unchanged. If this is a shock situation like the Bezos divorce, I’ll be surprised.


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