In a divorce involving significant assets, it is tempting to focus on one number: How much is the marital estate worth, and how much will each spouse receive?
But two spouses can each receive assets worth $1 million on paper and walk away in very different financial positions.
A million dollars of cash is different from a million-dollar interest in a closely held business. A retirement account is different from an investment account. A valuable home may come with a substantial mortgage, taxes, insurance, maintenance, and very little liquidity.
That is why, in a complex equitable distribution case, I encourage clients to look beyond the stated value of an asset and ask a second question:
What will owning this asset actually mean after the divorce?
North Carolina Equitable Distribution Starts With Value, But It Does Not End There
North Carolina uses equitable distribution to divide marital and divisible property.
An equal division is presumed to be equitable, but North Carolina law recognizes that the character of the assets matters. Among other factors, courts may consider whether property is liquid or nonliquid, the difficulty of valuing a business or professional interest, the economic desirability of keeping certain assets intact, and potential tax consequences.
Those considerations become particularly important when a marital estate contains different types of assets.
The goal should not simply be to make two columns on a spreadsheet show the same total.
The goal should be to understand what is actually in each column.
The House May Be Valuable, But Can You Afford to Keep It?
One of the most common examples is the marital residence.
A client may understandably feel strongly about keeping the house, particularly after a long marriage or when children are still living at home.
But receiving the house is only the beginning of the analysis.
What is the mortgage payment? What will the property taxes and insurance cost? Does the house require substantial maintenance? Will it need repairs? Can the spouse who keeps it refinance if necessary? How much of that spouse’s post-divorce income will be consumed simply maintaining the property?
A house with substantial equity may be an excellent asset for one client and a financial burden for another.
Before fighting to keep it, the better question may be: Does keeping this house fit the financial life I will have after the divorce?
A Business Is Not a Bank Account
Closely held businesses present an even clearer example.
In a high-net-worth divorce, a business may be one of the most valuable assets in the marital estate. But assigning a value to the company does not mean the owner has that amount of cash available.
A business may need capital to operate. It may have debt, payroll obligations, equipment needs, inventory, or other expenses. Its value may depend heavily on future operations and the continued efforts of the owner.
If one spouse receives a business valued at $2 million while the other receives $2 million of liquid investments, the numbers may appear equal. Economically, however, those spouses have received very different assets.
That does not necessarily make the distribution unfair. It does mean the differences should be understood before the parties agree to it.
Retirement Assets Have Their Own Considerations
Retirement accounts are another area where clients sometimes focus too heavily on the account balance.
A retirement account may be worth $500,000, but it generally cannot be treated exactly like $500,000 sitting in a checking account.
There may be restrictions on when funds can be accessed, tax consequences associated with future distributions, and special procedures required to divide certain retirement plans.
Retirement assets can be an extremely important part of a property settlement, particularly after a long marriage. But they should be evaluated based on what they are—not simply based on the number shown on the latest statement.
Debt Changes the Picture
Assets also need to be considered alongside liabilities.
Real estate may secure debt. A business may have loans or lines of credit. One spouse may be assuming responsibility for obligations associated with an asset while the other spouse receives property with little or no corresponding debt.
A proposed property division therefore needs to be examined on a net basis and in the context of each spouse’s ability to manage the obligations they will have after separation.
This becomes particularly important when one spouse has significantly greater income than the other or when alimony is also an issue.
Liquidity Matters
One of the most overlooked questions in property division is simply:
Where will the cash come from?
A spouse can leave a marriage with substantial net worth and very little liquidity.
That matters because life after divorce still requires cash—for housing, taxes, living expenses, debt payments, legal fees, and sometimes support obligations.
A settlement heavily weighted toward illiquid assets may leave a client financially constrained even though the balance sheet says that person received substantial wealth.
Conversely, a spouse who receives more liquid assets may have greater flexibility to invest, purchase a new residence, pay expenses, or restructure his or her financial life.
Liquidity is not the only consideration, but in a significant marital estate, it should rarely be ignored.
Look at the Entire Financial Result
Equitable distribution is not simply an exercise in dividing numbers.
A thoughtful analysis should consider the type of assets each spouse will receive, their liquidity, associated debt, future expenses, potential tax consequences, income-producing ability, and how the distribution interacts with other financial issues in the divorce.
That is particularly true when the case involves businesses, multiple properties, substantial retirement assets, investments, or significant support obligations.
One of the most useful questions a client can ask during settlement negotiations is not simply:
“Is my side of the spreadsheet equal?”
It is:
“What will my financial life actually look like if I accept these assets?”
The difference between those two questions can be significant.
Alexander French is a North Carolina Board Certified Specialist in Family Law and Partner with McIlveen Family Law Firm in Charlotte. His practice focuses on equitable distribution, alimony, financially complex divorce, business interests, and related family law litigation.
