The Importance of Determining Separate Property vs. Marital Property
On May 3, 2021, Bill and Melinda gates announced their decision to end 27 years of marriage. According to a variety of news reports, Melinda Gates filed the petition for divorce citing that their marriage is “irretrievably broken.” With Bill Gates being the fourth richest person in the world with a net worth of approximately $130.6 billion, this left many people wondering how they would divide their assets and how assets are typically divided in a divorce.
Shaw Family Law, L.L.C. has experience dealing with divorce at a wide variety of income levels and asset divisions, and we can walk you through how this works in the state of Alabama and how it seems to be transpiring for the Gates.
In Alabama, when married spouses divorce, their money, property, and assets are divided into two categories: separate property and marital property. Separate property refers to any property the spouses acquired separately before the marriage or after separation, while marital property refers to all of the property acquired by either or both spouses during marriage. Courts in Alabama treat the majority of property a couple acquires during marriage as marital property.
The law gives a judge the ability to divide such property in the way that judge deems fair. If one spouse owns property before marriage or receives it through gift or inheritance, the court usually considers this to be the spouse’s separate property and does not divide it during a divorce. The court might make an exception if the property has been used to benefit both spouses throughout the marriage.
Furthermore, in a marriage that lasted ten or more years, a judge may award one spouse a portion of the other’s assets. A common example of this would be giving one spouse access to the other's retirement accounts. If the couple is making their own agreement, they can divide the assets in the way they feel suits them. For example, some couples have a premarital agreement that defines the property as separate or marital. They can use these agreements to their advantage in the case of divorce. Other couples have a prenup, which also makes dividing the assets more cut-and-dry.
Like most states, Alabama follows a system of equitable distribution, which means that debts and assets are shared on a principle of equity. However, this does not mean that debts and assets are divided equally. In Alabama, we take several factors into account when determining how assets will be divided, including the following:
- Each spouse’s monetary and non-monetary contributions to the marriage
- Each spouse’s expected ability to earn a living after the divorce
- The length of the marriage
- Each spouse’s share of childcare responsibilities after the divorce
- Any abuse or adultery committed by either spouse during the marriage
Specifics of Divorce for Couples with High Net Worth
When it comes to couples with a high net worth, like the Gates, the rules are primarily the same, but can be more complicated because they must be applied to a wider range of assets. One of the most challenging parts of divorce for a couple with high net worth is identifying which of their assets are separate property.
Another challenge that can arise with high net worth couples is that of commingling separate and community assets, which can happen when a couple uses separate assets to make improvements to existing community assets. In these cases, the rules of division will depend on the laws in that particular state. The Gates are getting a divorce in Washington, which unlike Alabama, is a community property state.
Specifics of Divorce Laws in Community Property States
Most states have enacted the equitable distribution laws that Alabama has, but Washington, Louisiana, Arizona, California, Texas, Idaho, Nevada, New Mexico, and Wisconsin are community property states. In community property states, all of the marital assets are jointly owned so they must be jointly split in the case of divorce. The courts take three steps in deciding how to divide assets in these states:
- Each asset and debt is determined to be community or separate property.
- Each asset is valued through an expert appraisal or an agreement by the couple.
- The assets and debts are divided between the couple in a just and equitable way.
Examples of such assets include real estate, personal property, savings, retirement accounts, and debts acquired during the marriage. In these states, if separate property becomes community property during the marriage, it would be subject to division during divorce proceedings as well. There are two major exceptions to community property law, including the following:
- Assets owned by either spouse prior to marriage are not subject to division as community property.
- Assets that a spouse gained by inheritance during the marriage are not subject to division as community property.
How Will Bill and Melinda Divide Their Assets?
In the case of the Gates, the couple has a separation agreement they have asked the courts to refer to when divvying up their assets. A separation agreement is a contractual agreement that details a couple’s decision to live apart, their ongoing obligations, how they intend to distribute assets, and arrangements for any children involved. The Gates’ children are adults, with the youngest being 18, so the couple will not need to worry about a custody agreement.
These types of agreements can override community property laws as long as the agreement is valid and does not violate state or federal laws. It is a great option for couples who are on the same page in terms of how they will divide their assets, which Bill and Melinda seem to be.
According to Forbes, if the couple chooses to split their fortune equally, Melinda would be worth $65.25 billion. While it is not exactly clear how the couple will divide their assets, in their joint statement, they stated that they will continue working together at the Bill & Melinda Gates Foundation, which is the largest private body of its kind and spends billions of dollars every year on initiatives aimed at eradicating infections diseases and reducing poverty. In a separate statement, the Gates Foundation stated that the couple would remain co-chairs and trustees of the organization.
No matter what a couple's net worth might be , dividing assets during a divorce can be complicated. Call Shaw Family Law, L.L.C. at (205) 259-7650 or contact us online to find out how we can help bring some clarity to these uncertain times and allow you to focus on rebuilding your lives.