One of the most common questions we get when talking to a prospective client about their divorce is, “What assets should I be advocating for?” The implication here is that not all accounts are created equally, and that is the truth. Equal and equitable are not the same thing when discussing an asset division. Here are our top 3 tips to make sure you are getting a fair and equitable settlement.
1. What are your post-divorce goals?
One of the first things to consider when looking at an asset division is – what are your plans post-divorce? Do you want to buy a new house and need money for a down payment? Do you have debts that you want to pay off in full so you can start off with a clean slate? Are you worried about large legal fees or big upcoming expenses that you will need to pay for shortly after your divorce is final? If so, then you will need to be sure you have enough cash on hand to cover your short-term goals and expenses post-divorce. In this case, cash or investment accounts will be more valuable for you as you will have an easier time getting to that money to use for your expenses. You may consider opting for more cash or investments instead of real estate.
2. What is the difference between an IRA and a Roth IRA?
Not all retirement assets are the same, especially when taxes are taken into consideration. Most retirement accounts such as an IRA, 401k, or 403b are pre-tax accounts meaning that the money you put into the account has not had taxes paid on it yet. That money grows tax deferred so when you take the money out in retirement, it is all taxable. However, the Roth IRA and Roth 401k are different. Roth accounts are contributed to with after-tax money, they grow tax deferred and the distributions during retirement, done correctly, are entirely tax free! Therefore, the money in Roth IRAs or Roth 401ks could be more valuable since the taxes have already been paid.
3. Is keeping the primary home the same as keeping a vacation property?
If you have multiple properties, it is important to note the taxation on selling real estate as well. If you have owned and lived in your primary residence for at least two of the last five years before selling the property, as a single person, you would have up to $250,000 of profit that is tax-free. If you sell while married, the tax-free amount doubles to $500,000. However, when selling a vacation property that is not a primary residence, these tax advantages do not apply, so the profits on the sale of the home would be fully taxable as capital gain. Therefore, if you have two or more properties, it is important to note that the primary home will have tax advantages on the profits of the sale and the others will not.
Talking these issues through with a trusted professional can give you clarity and peace of mind. If you want help evaluating your settlement offer to be sure that it is fair and equitable, schedule an appointment with us today to discuss the details of your situation.