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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I am splitting equity in a cottage in a divorce settlement

Customer Question

I am splitting equity in a cottage in a divorce settlement (assume $60k cash equity value). I will be providing SEP-IRA retirement assets reduced by 20% (0.8) to account for the settlement.
Assuming we have $400k SEP-IRA in each of our columns after the split, do I reduce one column by $37.5k (60k/2/0.8=$37.5k) and add $37.5k to the other column?
$400k + $37.5k = $437.5K (wife)
$400k - $37.5k = $362.5k (husband) + property ($30k cash equity equalization)
OR
Do we split the $37.5k adjustment in half, adding 1/2 to one column and 1/2 to the other?
$400k + $18.75k = $418.75k (wife)
$400k - $18.75k = $381.25k (husband) + property ($30k cash equity equalization)
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!
I am not clear on following:
- are you going to divide SEP-IRA assets because of divorce?
- are you going to take SEP-IRA distribution?
- if yes - possible tax liability might be more or less than assumed 20%
Customer: replied 1 year ago.
We are not taking distributions. Just splitting.20% reduction in value was the agreed upon conversion to cash.
Customer: replied 1 year ago.
We are dividing SEP-IRA assets due to divorce
Expert:  Lev replied 1 year ago.
If you divide SEP-IRA assets - based on your divorce - that is NOT taxable transaction as long as there is no distribution.So far - it is not clear why division of the equity in the real property is related to the division of SEP-IRA assets - that is just added confusion.However if you will exchange your share of the equity in the real property - $30k - that is after tax for some pre-tax assets in SEP-IRA that is a different issue - but in this case - we need to account separately for pre-tax and after tax assets -
Customer: replied 1 year ago.
I'm sorry...I think we have a disconnect. I'm not so interested in the tax treatment as the equalization of property. I don't believe this will be productive. Please do not charge me for this service today. I will disconnect now. Thank you.
Expert:  Lev replied 1 year ago.
Assuming the wife is giving up per share of the equity in the real property - $30 (after tax) - and accepts in exchange for after tax funds in SEP-IRA $37.5kFor instance - for pre-tax assets - wife -- husbandSEP-IRA assets - $400k -- $400kadjustment in exchange of equity - ($37.5k) -- $37.5kNET - $437.5K -- $362.5k