Is all property in a divorce created equal?
On the surface, the value of some properties may seem the same when trying to divide them in a divorce, however, the value of a property may not be as it seems! Let’s take a look at some different properties that seem to have the same value but really do not have the same value:
IRA ,TRADITIONAL $150,000
ROTH IRA $150,000
STOCK BROKERAGE ACCOUNT $150,000
YOUR HOME $150,000
CASH: Cash comes in different forms and depending on the form and your special circumstances the cash may not be worth $150,000 to you. If cash was in the form of a certificate of deposit there are two questions that need to be asked. What are the terms of the certificate? If it is a certificate that accumulates interest payable at the end of the term, there will be a tax consequence when the certificate matures. If you need the money today and the certificate has years to mature the value to you is not $150,000 because cashing in the certificate may cause the loss of the accumulated interest and if you wait for it to mature there will be taxes on the accumulated interest. There are other questions with regard to cash if it is deposited in Canada or Mexico.
IRA Traditional: Depending on your age and needs $150,000 in an IRA may not be worth $150,000 to you. If your needs are to spend the money now and you are less than 59 1/2 years old there are large consequences. If you are not 59 ½ and you cashed in the fund there would be a 10% penalty and you would have to declare the whole amount you receive and the 10% in your tax return as additional taxable income stacked. So is it really worth &150,000? It could be if you didn’t need the money. If you didn’t need the money this asset could be worth more than $150,000 because its earnings in the future would be tax free.
ROTH IRA: The difference between the traditional IRA and the Roth IRA is that the taxes on the Roth have already been paid and when you are eligible to withdraw the money it is tax free. However, the questions with regard to Roth are the same as the questions in the traditional IRA if you need the money now.
DUPLEX: This asset may be worth $150,000 to a buyer. However, in a divorce situation is it worth $150,000? Maybe not. If you receive it as part of your property division and you need the money now it could be worth a lot less. If you as a couple bought this property during the marriage for less than the today value the increase in value will be taxable when you sell it. If it was depreciated during the marriage the depreciation taken during the marriage will reduce the tax basis and thus increase the tax to be paid. Lastly, when and if you sell it you could be paying a realtor’s fee.
STOCK BROKERAGE ACCOUNT: The stock brokerage account may have a value of $150,000; however, the question to ask is how much of that $150,000 is unrealized gain? Unrealized gain is the increase in value of the stock that makes up the brokerage account. That unrealized gain will be taxable upon sale of the stock. That gain could be taxable as ordinary income for tax purposes, or capital gain income depending on when the stock was purchased.
YOUR HOME: Your home may have an appraisal that says it is worth $150,000, however, an appraisal is an educated guess as to value. The guess could be as 5- 10% off either way. In other words the home could be worth more or less by 5 or 10%. Further, depending on your intentions the sale could reduce the value by the realtor’s fee.
401K: This retirement fund has the same questions as the IRA and the Roth. It may look like it is worth $150,000, however, depending on your circumstances it could be worth a lot less. It could be worth no more than $112,500 if you need the money now and are less than 59 ½. Years old.
Each piece of property, to determine value, in a divorce context, needs to be evaluated based on the current situation of the party as well as the character of the asset.
Call Ross Stancati today for assistance in your divorce case. 269-381-4471