How to Figure Out the True Value of Your Divorce Assets
When you begin the process of divorce, it can feel like a whirlwind. Not only are your emotions raw, but it’s easy to feel overwhelmed with all the details of the divorce itself. When I host divorce workshops, I like to tell attendees that they don’t need to be an expert in everything. They don’t need to be a legal expert, a financial expert, or a real estate expert. However, there is absolutely one thing they (and you) must know, and that’s the true value of your divorce assets. If you don’t know how much your assets are really worth, then you could lose a lot of money when your divorce is complete.
Putting Together Your Divorce Asset Inventory
One of the first homework assignments your divorce attorney will give you is to complete an inventory, which is a complete list of your divorce assets and debts. (Note: Certain things, like inheritances or possessions you owned before the marriage may not be considered marital property.)
You’ll also need to collect documentation to support what you include in the inventory. When your attorney says “complete,” they mean complete to the best of your ability! They realize your spouse may have certain documents you don’t have access to, but do your best to include every asset and liability you know about. Your list of divorce assets should include things like:
- Checking and savings accounts
- Your house and other real estate
- Retirement and investment accounts
- Your vehicles
- Jewelry
- Student loan debt
- Mortgage
- Bonuses
- Cryptocurrency wallets
- Credit cards and any other liabilities
- Separate property
- Etc
Once you’ve compiled your inventory and gathered the documents you have, the next step is to determine the value of every item in your inventory. This is where you’ve got to be extra, extra careful. Your attorney will use the determined value of your assets to help you negotiate a divorce settlement with your ex or to pursue a settlement through mediation, or, if all else fails, court. If the values you give the items on your inventory don’t reflect their true value, your settlement may not be fair at all. In fact, your ex could walk away with much more than you!
What’s the Value of Your Divorce Assets When You Liquidate?
While divorce is not a taxable event, it can end up being just that if not done correctly. In many cases, an asset’s value can change (usually by decreasing) when you liquidate it. This isn’t just a case of selling off an asset for lower than your purchase price. Fees and taxes can take a big bite out of certain assets.
For example, let’s say you and your ex own a money market account and a 401k account, each with $100,000 in it. Your ex takes the money market account and you take the 401k. You’re both getting $100,000, right?
Nope. The 401k is a qualified account, which means the money was invested pre-tax. When you pull money from the account, you’ll need to pay taxes on it. If you are in a high tax bracket, that could mean losing 30% or more of the value of the money. Ouch!
Here’s another example I’ve seen many times before. Your house is worth $1,000,000. You decide to keep the house and give your ex assets to equal their share of the home’s equity. You originally purchased the house for $450,000. If you were to sell, you would earn $550,000 in capital gains. Couples are able to exclude up to $500,000 of capital gains from capital gains taxes if they lived in the home for two of the last five years. Single individuals, however, can only shelter $250,000 of capital gains on their property sales. In this case, you’d have to pay a long-term capital gains tax of 0 to 20% on the $300,000 you couldn’t shield based on your income.
Want another example? Here’s one that many people miss until it’s too late. Let’s say you and your spouse bought 10 shares of a certain tech stock every year in a non-qualified (or non-retirement) account. Over the past ten years, the stock has increased significantly. At the time of the divorce, you have 100 shares of the stock and decide to divide them evenly. You get 50 shares, and your ex gets 50 shares. This has to be a fair split, right?
You probably know the answer to that question by now. When you sell stocks, you’ll be taxed on the gains you earned on each individual stock. That means the more your stock increased during the time you held it, the more taxes you pay. In this scenario, the earlier the stock was purchased, the more it earned, and the more taxes you’ll owe when you sell that stock.
So, if you received 50 of the lower-cost basis stocks, you’ll face a much higher tax burden than your ex when it’s time to sell the stocks.
How Can You Know the True Value of Your Divorce Assets?
Almost every divorced person I meet tells me they wished they’d worked with me during their divorce. Too many times, men and women discover they didn’t get the divorce settlement they thought only after it’s too late. Maybe they didn’t realize an annuity included steep surrender charges for an early withdrawal or that the cryptocurrency they received could fluctuate significantly in value from day to day.
The truth is that even the best divorce lawyers aren’t financial experts and may not know what your assets are truly worth. If you want to protect yourself and ensure you fully understand the value of a potential settlement, it’s important to work with a financial advisor. I would strongly recommend working with a Certified Divorce Financial Analyst, as a CDFA® has worked with many, many clients just like you to correctly value their assets.
Find a Second Saturday Divorce Workshop Near You
Melanie Johnson, National Director of Second Saturday Divorce Workshops. is a Certified Divorce Financial Analyst (CDFA™). Since 2006, Melanie has continuously led a Second Saturday Divorce Workshop in her home city of Austin. Melanie also works as an investment advisor for Beck Capital Management, LLC.
