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# I am splitting equity in a cottage in a divorce settlement…

Customer Question
I am splitting equity in...
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: 2 years ago.Category: Tax
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6/24/2015
Tax Professional: Lev, Tax Advisor replied 2 years ago
Category: Tax
Satisfied Customers: 32,838
Experience: Taxes, Immigration, Labor Relations
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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 reply replied 2 years ago
We are not taking distributions. Just splitting.20% reduction in value was the agreed upon conversion to cash.
Customer reply replied 2 years ago
We are dividing SEP-IRA assets due to divorce
Tax Professional: Lev, Tax Advisor replied 2 years 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 reply replied 2 years 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.
Tax Professional: Lev, Tax Advisor replied 2 years 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
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