Amazon chief Jeff Bezos and his wife MacKenzie have announced that their marriage is ending, likely leading to the largest divorce settlement in history.
Though the couple has asserted that their separation will be amicable, the divorce proceedings could still be complex, highlighting the risks to entrepreneurs when marriages end.
The law in Washington State, where the couple live, holds that property generated during the marriage should be divided equally between the parties. This is much like English law which starts from equal division of the marital acquest. As Amazon was founded a year into their marriage, Bezos’s whole $120bn stake is potentially subject to a 50-50 division.
This will hit his personal wealth, but it could have significant consequences for Amazon itself. When the major shareholder in a company enters divorce proceedings, their holding is at risk in ways that can impact the governance and value of the business.
Meeting a settlement may require a significant sale of stock – Asos founder Nick Robertson had to dispose of around £46m of shares to fund his divorce settlement.
This poses an obvious risk of dilution, especially when the person concerned has been the key player in the firm’s growth.
Moreover, the release of a mass of shares to the market can cause a glut, hampering the firm’s share price. In privately held companies, a divorce may even necessitate the sale of the entire business.
To avoid this, a spouse may assign shares as part of the settlement. This can be fraught, as two divorced people transfer their matrimonial battle into the boardroom, but even when the divorce is amicable it can be difficult.
Often the spouse who receives shares will be looking for an early exit to fund their lifestyle, while the original founder may sacrifice this for long-term growth. Having two major shareholders with such misaligned goals can seriously hamper a firm.
Finally, though the courts cannot force companies to declare dividends (the corporation remains a separate entity to the owner), they can make awards that pressure owners to do so.
Where a business has significant cash reserves, the court can make an order which the owner could only pay by extracting cash. This may be a boon for their spouse, but if the capital reserves had been built up for a strategic purpose, it could hinder projected growth.
The world’s largest company is rich and robust enough to be able to ride out these challenges. Smaller, rapidly growing companies may not be, even before you factor in the way that divorce litigation may distract and consume the active owner of a business.
One solution is a postnuptial agreement. Like its more famous prenuptial sibling, this is an agreement about how a couple’s assets will be divided on divorce. It can be signed at any point after a marriage, and is highly likely to be upheld by the courts.
Such an agreement can provide a clear and amicable roadmap for dealing with assets acquired or developed during the marriage, providing for a fair settlement and structuring it in a way that minimises harm to any business involved.
Though divorce is unexpected, its consequences need not be. An agreement made in amity is preferable to even the most peacefully contested proceedings, and will help minimise the negative emotional and financial impacts of a divorce.
Just as entrepreneurs plan for their succession, having an agreement in place should be a vital part of hoping for the best while insuring yourself – and your company – against the worst.
It is too late for Bezos to take such steps, and the market will be watching closely for the impact of his divorce on Amazon.
He will likely seek a settlement which maintains his influence and ownership of the company – but if he is unable to do so, expect either a sizeable liquidation or for MacKenzie to not only become the world’s richest woman, but also an influential shareholder in the world’s biggest business.