The Critical Role Your Attorney Plays in Navigating a High-Net-Worth Divorce in North Carolina (So Choose Wisely!): Part 1

If you have a high net worth, chances are that you worked hard to build everything you have and would do a lot to protect it. Whether you own a business, have invested wisely, own real estate, or are in a high-earning field, divorce can present a serious threat to your future financial stability. While the legal procedures involved in high net worth divorces don’t differ much from those that are as complex, the impact can be amplified due to the magnitude of what’s at stake.

Unfortunately, the laws of North Carolina can make high net worth divorces even harder; not only is it incredibly difficult to protect your privacy, but many are surprised to realize that some assets you thought were separate may be considered marital based on how you handled them after marriage. And the burden is on the spouse claiming the property is separate to prove it, which can be hard to do if you opened your investment account 30 years ago and don’t have the statements or can’t prove what your house was worth before marriage.

You’ve poured your blood, sweat, and tears into building a prosperous life for yourself and your family, so it’s understandable to be concerned about this very public, complex, and potentially contentious process. It should be obvious that you must choose your divorce attorney extremely carefully, especially if you have no pre or post marital agreement in place, or a marital agreement with weak or vague terms.

Let’s explore the key factors in a high net worth divorce in North Carolina and how having the right divorce attorney by your side can make the process smoother while protecting what matters most to you.

Business Valuations for Privately Held Companies

If you own, or have a vested interest in, a closely-held company, it will be crucial that you find a high-net-worth divorce attorney who has experience handling these types of businesses. However, before conversations about what will happen to the business or the business interests can even begin, the asset(s) must be identified, classified, and valued.

There are different valuation methods that may be used, including the income approach, asset-based approach, and market approach. A high net worth divorce attorney who has experience with assets like a privately-held business or ownership in a business has likely already compiled a network of financial experts that they frequently collaborate with, such as forensic accountants or financial analysts, so be sure to discuss this aspect with them early on in the process.

You should also be sure to discuss discounts to the valuation with your attorney, which are adjustments applied to a company’s estimated value to reflect certain real-world factors that could impact its actual marketability or control. Some examples include:

• Discount for Lack of Marketability (DLOM)
• Discount for Lack of Control (DLOC)
• Key Person Discount
• Embedded Taxes Discount

In short, the valuation of your business is going to have a significant impact on the legal strategy that your attorney uses to protect your business from being divided, so it needs to be accurate. You’ll want to do thorough research and have extensive discussions with your potential divorce attorney to verify they have the experience and knowledge necessary for your situation.

Protecting Business Continuity Through Divorce

Another important factor to contend with when it comes to a privately-held business or business interests is minimizing the disruptions that divorce can often bring to operations, especially if both spouses have financial or operational ties. Some potential issues that can arise include:

• Ownership disputes
• Valuation challenges
• Financial strain and liquidity issues
• Operational disputes and leadership conflicts
• Confidentiality risks and loss of business privacy
• Employee and client concerns

These issues are other reasons it is so critical to have legal guidance from someone who has considerable experience handling divorces where a business is involved. They will be able to help you implement strategies that reduce the chances of these issues popping up and seek swift resolutions that protect business continuity if they do arise.

Tax Consequences and Benefits

As already stated, divorce is already a complex process, but a high net worth divorce is even more so. Nearly every decision you make regarding your asset division, sale, or transfer of ownership will likely impact your taxes. Having an attorney who can strategically navigate the tax code, not just to minimize financial losses in the short- and long-term, but also to maximize your benefits, can make a major difference in this process. This typically involves consulting tax professionals and financial advisors who can lend their expertise to your specific circumstances.

Capital gains taxes are one of the most important tax aspects to contend with in a high net worth divorce, as they are in play when an asset is sold for more than its cost basis. Because it’s possible that many of your assets will be sold, divided, or transferred during your divorce, your attorney and the financial experts they consult with will need to have a thorough knowledge of how certain outcomes will cost you – both now and in the future.

None of this is to say that you or your attorney should be trying to cheat the system or pull a fast one on the IRS – bad idea. Instead, you should be focused on putting a strategic team on your side who can help you take advantage of the tax code as it applies to your financial circumstances.

If your potential divorce attorney isn’t willing to ask the hard questions and put in the work of finding a personalized solution that aligns with your needs and goals, then you should move on and continue searching for one that will.

Learn Why High-Net-Worth Clients Trust Our Experienced Legal Team To Secure The Results They Desire. Contact Triangle Smart Divorce Today!

It’s not selfish or greedy to want to protect the wealth you’ve worked so hard for. As Judge Learned Hand wrote, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” At Triangle Smart Divorce, our mission is helping smart people avoid making stupid mistakes during one of the most significant and challenging transitions in their life. Paying more than you should in taxes is stupid in our opinion. Divorce does not have to throw your entire life off-course. The legal representation you choose to guide you through it could make a massive difference in the outcome. 

Our dedicated North Carolina high net worth divorce attorneys have 200+ years of combined experience and the trust of hundreds of past clients who were able to achieve their goals and safeguard their financial stability because of our help and guidance. We know how to help you steer clear of common pitfalls and make smart decisions that will benefit you both now and in the future!

Call today to request a consultation with a member of our Team, and check back here soon for PART 2 of this helpful guide, where we’ll cover other high-net-worth divorce issues such as dividing real estate properties, dividing retirement and investment accounts, protecting your privacy, and more!