Divorce: “Retirement” versus “Investment” accounts
My husband of 35+ years and I are divorcing. My attorney is making a big distinction between our retirement accounts and our investments. We were both educators and sheltered money via TSA when working, so that is pre-tax money that will be taxed via capital gains or as income for IRA’s when withdrawn.
To me the difference is a tax rate of 24% for the IRA withdrawals versus approximately 20% for Capital Gains (15% for feds, 5% for Illinois).
What say you ?
Terry Says
Wait — either you misunderstand, or maybe I didn’t read your question correctly. There IS a big difference between your after-tax investment accounts, and your own retirement accounts.
Each of you should keep your own retiremetn accounts. But if one of you was out of the workplace, perhaps to raise children, or because of illness, maybe the fair thing is to adjust in the division of AFTER-TAX investment assets.
ALL retirement account withdrawals will be taxed as ORDINARY INCOME.
If you sell investment, the tax rate is capital gains — and it depends on your cost basis, and whether you have held the asset for one year or longer, and your own income tax level.
So, yes, these assets should be treated separately — and perhaps equalized. Sounds like your attorney is giving you the correct advice. We have no idea what tax rates will be in the future, so you must make the equalization decision based on current tax law.
And as a PS, if you have a life insurance policy on your about-to-be ex-spouse, make sure that you are the Owner as well as the Beneficiary! He should send you enough money to pay the premiums. That way, he cannot change the beneficiary.
