Ok, no joking around, and no you can’t keep those!

Think about the things that are most valuable to you, and if you were to split with your spouse, which things would you want to keep for yourself.

Some people pick the house.  Others want to keep their cars.  Some really want to hold on to their retirement account.  Which is the best.

Well, considering what housing prices have done the last few years, I’m not sure many people are looking to keep their house.  It might even be turning into a symbol of a failed marriage.

Regardless, people may be looking at the values of things from a skewed lens.

For instance, let’s take a look at a split of a $400,000 estate.  $200,000 is what the house is worth (we hope).  And $200,000 in a tax sheltered retirement account.

Couple things.  First, that $200,000 in the house is free and clear of any taxes (if it sold for that, and you didn’t have realtor fees and you didn’t pay closing costs).  The $200,000 in the retirement account will eventually be taxed.  But at what rate?  Some states (North Carolina) require that you tax it at your current tax rate.  So if you are in the 28% tax bracket, that $200,000 is actually worth $154,000 – now the spouse with the $200,000 is up and this split is no longer equitable.

But wait, to be fair, this couple is in their 40’s and their retirement tax bracket might be significantly lower – say 15%.  Now the spouse with the house (yes it rhymes, and no I didn’t mean to) is only up by $30,000 (I say only, but I realize it’s a lot).

Maybe it would be fair for the spouse with the house to shift some equity to the person getting the retirement account.

Wait yet again.  What sort of investments are in the retirement account.  Is this account managed like an endowment, where the yield might average as high as 20%?  Or is it managed extremely conservatively, and would earn a rate of return lower than the return on the house?

Further, what are the added expenses associated with the house that reduce the return (cost of ownership such as taxes, replacement of heat pumps, landscaping, etc.)?  How do those factor in?

These are all questions you should ask yourself if you are trying to figure out what you want in property from a divorce.  Be careful not to agree to something that doesn’t make sense for you long-term.