Just before he was about to begin teaching his online family law class at the University of Washington on Monday, professor Terry Price received an emphatic text from one of his former law students. It read simply: “Bill and Melinda!!!!”
“So I stopped what I was doing and Googled it immediately,” Price said. “The odd thing is, the class before we were just talking about (a precedent-setting case) that is important in high-income divorces.
“So you can guess what we talked about in class,” Price added.
PREVIOUSLY: Bill and Melinda Gates announce decision to end marriage after 27 years
Bill and Melinda. The unexpected sequel to the Seattle-area’s billionaire divorce drama. But the Gates split, unlike the 2019 Bezos uncoupling, appears to be different in a few ways, Price said, although similar in one primary fact: unimaginable wealth.
“They have so much money, it’s unfathomable,” Price said. “It’s easier to contemplate someone who’s got hundreds of thousands of dollars than someone who’s got hundreds of billions of dollars.”
But legally, he said, this divorce should be pretty straightforward in Washington state for a variety of reasons. Here’s how to better understand it.
Washington is a mandatory form state
Every Washington resident, no matter how wealthy, must file a petition of dissolution which then enters the public record. In this case, the petitioner is Melinda Gates and the respondent is Bill Gates. Price noted that there are a couple of important details here that sometimes get misinterpreted by the public.
First, being the petitioner does not afford that person any special right, status, or claim. Mostly, it tends to be the person who first filed the paperwork and should not be mistaken for who pushed for the divorce or who has the greater claim. Both the petitioner and respondent have equal status under the law.
Second is the term “irretrievably broken.” In the Gates’ petition (see in full at bottom), this is the reason cited by Melinda’s legal team. But it is a standard legal term, Price said; nothing nefarious is implied. For example in California, he said, it’s called “irreconcilable differences.” It’s virtually the same catch-all phrase.
“Those are the two words that Washington uses,” he said. “You don’t have to prove it. You don’t say any reason why you are splitting up. You can infer nothing from it.”
Because the petition was filed May 3, there is a mandatory minimum “cooling off” period of 90 days. This means no Gates divorce will be granted before early August.
Bill Gates agreed to the dissolution petition — and the settlement contract
On page 5 of the petition is Bill Gates’ agreement to the divorce called a joinder. This very likely means the couple has been talking about this decision for a while. “They have billions of dollars to divide,” Price said. “This is not something where either of them is just going to wake up and say, ‘I’m getting a divorce.'”
Also, when Bill Gates joined the dissolution petition, he agreed to the settlement agreement. Also in the petition, Melinda Gates declined spousal support. This likely means that the process already was underway. It should be noted that Bill’s investment company transferred $1.8 billion in stock to Melinda on the day the divorce was announced.
Separate property vs. community property
Washington is a community property state. This means that everything earned in the marriage by both parties — regardless of who earned it — is shared property.
The other property that comes into play is called separate property. This includes wealth established prior to the marriage; Bill Gates had been running Microsoft for nearly 20 years at the time he and Melinda married so he had already acquired considerable wealth beforehand. And also gifts or inheritance earmarked for a specific person are separate.
The separate property versus community property can involve some complicated accounting when the percentage of ownership — such as with a house or stocks — is factored in.
So what’s in play — with one notable exception below — mostly is the wealth acquired during the marriage. And how important is this legal standard? Mark Zuckerberg famously — and legally — established his net worth at $19 billion the day before his wedding to Priscilla Chan. The company growth after that date likely is community property.
So, Price said, what Gates accountants likely are working on now is the post-marriage community property valuation and how it will be divided. This is governed in the form of a separation agreement.
Will we be able to see the separation agreement?
Very unlikely. While the petition of dissolution is a public record, the separation agreement is not. “That’s what happened with Jeff Bezos,” Price said. “We will never see it.”
Price speculated that the couple and legal counsel likely had started working on this prior to filing the petition given the vast amount of wealth.
Simplifying factors
Washington is a no-fault state, meaning that shared assets are the primary legal discussion point, not fidelity. And the Gates’ three kids are adults. The court will see this as similar to not having kids in terms of dividing assets.
Complicating factors
Price mentioned that his law class prior to the Gates’ announcement had been dissecting a precedent-setting case that centered on the contentious divorce of a wealthy couple also with connections to Microsoft: Larson v. Calhoun.
RELATED: Divorce fallout: What happens to Gates Foundation when Bill and Melinda are no longer married?
In the case, Christopher Larson, an early Microsoft investor and executive, had amassed hundreds of millions of dollars as the company grew through the 1980s and 1990s. Some of that wealth he established before he married Julia Calhoun in 1986, some of it came after. Because the claim on community property generally starts on the marriage date, Calhoun was entitled to half of the wealth accrued after the two got hitched.
But the Larson ruling also declared that in some situations, the court can reach back into pre-marriage wealth and use some of that when dividing community property. This meant Larson, who retired from the company in 2001, had to pay tens of millions in additional money to his soon-to-be ex-wife.
So a judge could reach deeper into Bill Gates’ personal wealth than he expects. Bill Gates likely is familiar with the case as he’s the one who introduced the couple in the 1980s.
What does the wealth distribution mean for the Bill and Melinda Gates Foundation?
Both Bill and Melinda Gates have indicated that they will continue to keep working together on the board of the foundation. But neither is obligated to. If Melinda Gates wanted to take her share and put it into another foundation, she could.
“Short of any contractual promises she has made, once they are divorced and she gets her distribution, she can do whatever she wants with it,” Price said.
The Seattle-based philanthropy’s endowment is worth nearly $50 billion and it has given slightly more than that in grants over the years. In a tweet, the couple said they still believe in the mission of the foundation and will continue their work there as co-chairs and trustees.
What happens next?
The wealth — at least $146 billion worth — will be assessed and divided. According to a story in CNBC, here’s some of the breakdown:
- The Gates’ real estate holdings are worth more than $200 million in total. This includes Xanadu 2.0, the 66,000-square-foot lakeside home in Medina. The property value is estimated at between $127 million and $130 million. (Bill might end up with this one as Melinda has said she’d prefer a smaller house.) The couple also has tens of millions of dollars in property investments in Florida and California.
- The Gates’ also have collected art worth an estimated $130 million including works by Andrew Wyeth, Winslow Homer, and this $30 million Leonardo da Vinci notebook.
- Gates’ biggest single holding is Cascade Investment, formerly Dominion Income Management. Bill funded this company with sales of Microsoft stock and earned dividends. It is valued at about $29.9 billion.
- The existing Microsoft stock portfolio is estimated at $26 billion. Dividing this could involve some complicated assessment of what stock Bill held beforehand and what that block’s current value is. Or the couple could just split it in any agreed-upon fashion.
There are four steps to property distribution: identification of the property in play, from houses to art collections to intellectual property. Second, the property is classified as either community or separate. “Did you own the Renoir before we got married?” Price asked. “Questions like that.”
Valuation is next. “A team of experts will work on this,” Price said. “Given the assets, a large team.” Only after conclusions on the first three are reached will come distribution. “You are going to get the pile in X and you are going to get the pile in Y,” Price said. “And someone may say, ‘I’ve always hated that Renoir, you take it.'”
If the settlement agreement and distribution plan is reached, the couple could be divorced as soon as August 3, 2021. However, when the petition was filed, it set a court date for 11 months after the filing date. “But 97% settle,” he said. “That is a statistic that has remained stable.”
Anything else?
Just this: Among Gates’ listed attorneys is Eric Tuttle with the Los Angeles power firm Munger Tolles & Olson. The firm was founded by billionaire Charlie Munger, the vice chairman at Berkshire Hathaway and buddy of billionaire Warren Buffett who, in turn, is one of Bill Gates’ closest pals.
Here’s the Gates’ petition for divorce document, filed in King County, Wash.
