The House or the IRA? After-Tax Value in a Divorce: the facts

1. The house comes with its mortgage, the cost of eventually selling it, and the tax on its gain; the IRA comes with ordinary income tax on every dollar. Two assets at the same number on the settlement sheet are rarely worth the same to the spouse who takes each.
2. After a divorce the spouse who keeps the house has the single filer's $250,000 exclusion on the gain, not the couple's $500,000, and the other spouse's years in the home count toward the two-of-five test (§ 121(d)(3)).
3. An IRA received in a divorce is the recipient's own IRA; withdrawals before 59½ carry the 10 percent additional tax. A 401(k) share taken under a qualified domestic relations order does not, which is a reason to draw cash from the plan before rolling the rest.
4. Example: a house worth $800,000 with a $200,000 mortgage, bought for $300,000, against a $600,000 IRA. After selling costs and the tax on the gain above the exclusion, the house is worth about $521,700; after 24 percent tax, the IRA is worth $456,000. To match the house, the IRA would need to be about $686,447.
5. The house's number also depends on the spouse's ability to carry it: the mortgage, the taxes, and the upkeep on one income, which the sell-or-keep tool prices.
6. Neither asset's future is certain: the house may appreciate or not, and the IRA's tax depends on the rate when it is withdrawn. The comparison is at today's figures and today's rates, which is what the settlement is signed against.

Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.