Navigating the divorce process is often both emotionally and financially challenging. As part of the process, couples must divide their assets. While this often involves extensive legal and financial negotiations, and potentially even court involvement, there exists one option in structuring a property division that can yield positive results that benefit both the parties and their communities: charitable contributions.
The media often portrays charitable contributions made in connection with a divorce as an avenue only available to the rich and famous. I previously discussed how, as part of their 2021 divorce settlement, Bill and Melinda Gates pledged to continue working together on their philanthropic foundation, the Bill and Melinda Gates Foundation, which focuses on global health and development. The Gateses, who have donated more than $59.1 billion to their foundation since its creation, stated that they would continue to work together “to shape and approve foundation strategies, advocate for the foundation’s issues, and set the organization’s overall direction.”
Similarly, following her divorce from Amazon founder Jeff Bezos in 2019, MacKenzie Scott has made headlines for her philanthropic giving, donating more than $14 billion to over 1,600 charities and organizations. She works with a team of advisers to identify and vet community-focused organizations that work to reduce disparities in health, education, economic outcomes, and other critical issues.
But incorporating charitable contributions into a divorce settlement is not just for the rich and famous. In fact, charitable giving serves as a viable option for divorcing couples of all income levels. As charitable giving can take many forms, including donations of money or assets, one or both parties may choose to donate a portion of their property division to a charitable organization as part of their divorce settlement. This provides the parties with a way to support causes that are important to them, while potentially receiving tax benefits that can help offset some of the financial costs of the divorce.
There exist several types of vehicles that can help facilitate these charitable contributions. I have previously discussed the tax “win-win” associated with donor advised funds – accounts that parties can use to deposit assets for charitable donations over time. Divorcing couples who cannot agree on how to divide an asset may consider donating that asset directly or putting that asset into a donor advised funds.
Parties may further agree that one or both parties will contribute a certain number of dollars to a donor advised fund annually. Similarly, charitable remainder trusts are another vehicle available to divorcing couples. If a party plans to donate assets to charity, he or she could establish an irrevocable charitable remainder trusts that provides the income generated from the trust’s assets to their former spouse for a set period of time, after which the trust assets transfer to the designated charity. The spouse who donates the assets to the CRT may also enjoy the tax benefits associated with the charitable donation.
Overall, divorcing couples should consider incorporating charitable contributions into their final agreement. By working with qualified financial advisors and family law attorneys, divorcing couples can explore the best ways to incorporate charitable giving into their property division and create a positive legacy that will endure beyond their marriage.
This article originally appeared as a column for the Cleveland Jewish News.