Any Idiot Can Divide by Two…or Can They?

Apr 29, 2024

“Any idiot can divide by 2!”  That’s what I’ve heard more than one person say about divorce attorneys.  And they are right.  Sort of.

Most people who come into my office are sure that “50/50” for property division in North Carolina is the rule.  Except it’s not a rule, it’s just a starting presumption for a court.  The only real rule in equitable distribution in North Carolina is that it be, well, equitable (equitable being the fancy lawyer way of saying “fair”).

Nonetheless, due to this presumption, there are a fair number of cases that settle at or very close to a 50/50 property division.  Divide by 2, simple.

Except…it’s not that simple.  The overall relative split of assets and debts (people frequently forget about the debts) is just one of the big factors upon which to evaluate a property division.  The other is the structure of that division.  The structure of the property that the parties each walk away has many facets, but the two biggest ones are typically taxation and liquidity (future appreciation of assets can be wildly variable, so we’ll stick with the more predictable liquidity and taxation variables for now).

Taxation refers to how a person’s property will be taxed.  Will there be future income taxes or capital gains taxes on it?  Retirement accounts are a prime example of a taxable asset.  Unless the account is a Roth account, 401k, IRA, and similar pre-tax funds will be taxed as income when you pull it out.  That means that each dollar you walk away with today is only worth what you’ll have left once it is taxed later.

Similarly, non-retirement brokerage accounts typically come with capital gains taxes.

In contrast, cash in the bank and home equity are generally not taxed (home equity can be taxed under some very fortunate circumstances, and second homes are taxed differently than primary homes).

Liquidity of assets can be an even bigger concern.  If you get more than 50% of the overall assets, but you can’t access it to spend it, did you get a good settlement?  Maybe not. Liquidity is the term used to describe how easily you can access your money to spend it. Liquidity problems are what cause people to be “house poor”.  They live in a great house that has a lot of equity, but they can’t easily access that equity to pay for their everyday needs.  That’s not a great situation.

The point is that while 50% or more of the marital assets on paper may sound good on the surface, it may not be a good resolution if it is not structured to meet a client’s needs.  A lawyer or their client may be able to brag about getting a good deal by getting 50% or more, but it may actually hinder their client’s financial future if not structured intelligently.

The point is that while any idiot can divide by two, not just any idiot can make sure a settlement is structured in a way that meets a client’s needs.  You probably need the kind of idiot that was willing to go to law school and take a family law specialist exam for that.

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