Wife left

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hulburt1
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Wife left

Post by hulburt1 »

41 years marred we are separating on good terms. Both have 1m+
She would like money for part of house

House paid off $400000
I can move 170.000 to her Ira from my Ira,
I could get a loan at 4% for 170000 which is about +1100 a month for 15 years.
If I move to her Ira from my Ira. I lose the Investment from it. I'm 67 and still have not taken SS. I have enough to live the rest of my life going ether way.
If move 170000 she will have to pay the tax when she take some out.
I will still have 1.2m and a house paid of if I move 170000 to her Ira.
This 170000 will lower my RMD.

If I give her 170000 I will have 1m in Ira and 220000 in Roth
What would you do?
student
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Re: Wife left

Post by student »

Do you want to keep the house? Maybe use the time to think about where you want to retire. Unless the answer is you want to retire in this house for the foreseeable future, you can sell the house. If you want to keep the house, I think taking the loan is cleaner.
Flora
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Re: Wife left

Post by Flora »

If the house has $400k equity/no debt, with all else equal, then it sounds like you owe her $200k in after tax dollars (not $170k traditional IRA that is pre tax dollars.).
BogleMelon
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Re: Wife left

Post by BogleMelon »

If move 170000 she will have to pay the tax when she take some out.
I don't know how to make that happen financially. Your IRA is yours, and you are responsible for filing your taxes after withdrawing it. Not sure if there is another way to "move" your IRA to hers without first withdrawing it and trigger a taxable event on your side.
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Re: Wife left

Post by sailaway »

BogleMelon wrote: Fri Jan 17, 2020 11:47 pm
If move 170000 she will have to pay the tax when she take some out.
I don't know how to make that happen financially. Your IRA is yours, and you are responsible for filing your taxes after withdrawing it. Not sure if there is another way to "move" your IRA to hers without first withdrawing it and trigger a taxable event on your side.
There are usually ways to split up retirement funds in case of divorce.
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Wiggums
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Re: Wife left

Post by Wiggums »

If an IRA is to be split as part of a divorce, the split must be included in the divorce agreement. After divorce is final, forward the divorce agreement to the IRA custodian in order to process the division of IRA assets. The funds should be transferred directly to the ex-spouse's IRA.

Distributions made pursuant to QDROs are generally taxed in the same manner as any other “typical” plan distribution. One key difference is that a cash-out distribution from a QDRO is not subject to the 10% early withdrawal penalty.

Do you want a $400,000 house? If yes, transferring the IRA money to her, won’t cost you any taxes and will lower your RMD. Taking a loan out will cost you money, but will keep your IRA money invested. Both are viable options.
Last edited by Wiggums on Sat Jan 18, 2020 12:34 am, edited 5 times in total.
brad.clarkston
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Re: Wife left

Post by brad.clarkston »

I would rather sell the house than mess with the retirement funds.

IMO: If your lawyer does not list "sell the house" as his primary choice find a better lawyer.
Unladen_Swallow
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Re: Wife left

Post by Unladen_Swallow »

OP,

I am sorry to hear that. Hope you lead separate but fulfilling lives.

Some wise people are already providing you feedback. Best wishes.
Last edited by Unladen_Swallow on Sat Jan 18, 2020 12:33 am, edited 1 time in total.
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bampf
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Re: Wife left

Post by bampf »

My brother just went through this. He was emotionally attached to the house and it was a bad choice for him. You situation is vastly different, but, I can say that they one lesson I learned and he should have learned is that it is best to just be done with the whole thing as soon as possible and as fair as possible. I wouldn't worry about the delta in tax or the optimum way to manage this. I would just be fair, fast and done. I am sorry that you are going through this. I hope it works out well. I wouldn't let $30K or taxes or anything else get in the way of just sorting this as fast as you can.

my best wishes.
--Bampf
Katietsu
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Re: Wife left

Post by Katietsu »

I don’t understand your proposal. Is your wife OK with $170k of an IRA for which she may need to spend thousands in taxes to spend in return for $200 k of home equity? On face value, this does not seem fair to me.
MiddleOfTheRoad
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Re: Wife left

Post by MiddleOfTheRoad »

It is likely that OP’s wife has assets too. The 170k is to even things out, whether it comes from home equity or invested asset is the question.
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Cubicle
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Re: Wife left

Post by Cubicle »

I think selling the house is the best option. You would probably qualify for capital gains exclusion so it'd be a tax free event. Having to mess with the IRA and/or get a loan incurs unnecessary expenses.
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1130Super
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Re: Wife left

Post by 1130Super »

Flora wrote: Fri Jan 17, 2020 11:43 pm If the house has $400k equity/no debt, with all else equal, then it sounds like you owe her $200k in after tax dollars (not $170k traditional IRA that is pre tax dollars.).
You generally lose a good percentage to realators, closing costs and minor repairs so if someone has a 400k house they would only net say 350k
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Re: Wife left

Post by jubby288 »

Sell the house then split the proceeds
tibbitts
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Re: Wife left

Post by tibbitts »

1130Super wrote: Sat Jan 18, 2020 4:28 am
Flora wrote: Fri Jan 17, 2020 11:43 pm If the house has $400k equity/no debt, with all else equal, then it sounds like you owe her $200k in after tax dollars (not $170k traditional IRA that is pre tax dollars.).
You generally lose a good percentage to realators, closing costs and minor repairs so if someone has a 400k house they would only net say 350k
People seem to price their $400k houses as if $100k in work has already been done to them. A problem in this situation is that neither person will put 100% of the effort into doing the work to reclaim 50% of the increase in value.
cableguy
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Re: Wife left

Post by cableguy »

Whatever you do...don’t give too much money to lawyers...
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Re: Wife left

Post by oldcomputerguy »

A couple of off-topic comments were removed. Please keep replies centered on the financial aspects of the OP's question.
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student
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Re: Wife left

Post by student »

cableguy wrote: Sat Jan 18, 2020 9:10 am Whatever you do...don’t give too much money to lawyers...
Wise.
stan1
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Re: Wife left

Post by stan1 »

I would sell the house in most cases. Perhaps it is extremely well located (walking distance to grocery store or transit) and small enough for one person then maybe I'd keep it. In addition to simplifying life it is a symbolic way to move on to the next phase in your life. Even if you do remarry at some point your future spouse may not want to live in your ex-wife's house.

If you sell the house now I would split it off and split the proceeds of the sale. Balance up the other accounts separately. That way if the house sells for less than you won't be left with the sole responsibility for that difference. You can read board member Gardner's lengthy saga about selling a house after a divorce as a lesson in what not to do when selling a house (in many ways).
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Last edited by stan1 on Sat Jan 18, 2020 9:44 am, edited 1 time in total.
GrowthSeeker
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Re: Wife left

Post by GrowthSeeker »

Things to consider:
Say you agree the house is worth $400,000. You pay her $200,000. In a year you decide to move so you put the house on the market. When it sells, you don't get many offers and you end up selling it for $350,000. Or, even if it sells for 400k, you have realtor fees and other costs, but she didn't have those costs when you gave her 200k for 1/2 of the house. One solution is to sell the house and split the proceeds.

The IRA. Consider that money in an IRA isn't totally yours: somewhere between 10% and 30% of it is owned by the government, you just don't realize that until you take the money out of the IRA, depending on the income tax rate of the IRA owner at the time the money is taken out. So if you transfer $100k from your IRA to her IRA, you might get 100k worth of "credit" towards your wife getting half of everything (or whatever it is), but you might decide to think of it like you only paid $80k.
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Watty
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Re: Wife left

Post by Watty »

hulburt1 wrote: Fri Jan 17, 2020 11:31 pm What would you do?
Let your lawyers or an accountant determine what an equitable amount of the IRA is and have a QDRO transfer that into an IRA in her name.

One of the the things you will be running into is that once you are divorced you will both be filing tax returns in the higher single tax brackets and you may also be in the income range when where each dollar of additional income can also caused more of your Social Security to be taxed. This can put you into a surprisingly high effective tax bracket. This could mean that to have $1,100 a month to pay a mortage payment could require you to have a LOT higher IRA withdrawal to be able to have that much after paying taxes.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

Tax rates are also scheduled to go back up in 2026 if there are no future tax law changes.

In this process also get good documentation of what your cost basis for the house will be, you will need that when you eventually sell the house.
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Re: Wife left

Post by TomatoTomahto »

jubby288 wrote: Sat Jan 18, 2020 7:20 am Sell the house then split the proceeds
+1. KISS.

You are looking for a clean exit. Injustices will abound; ignore them as best you can. One example: my ex was told by her attorney that QDRO-ed retirement funds are not taxed on withdrawal. It pissed me off. I considered dropping a dime on her. I got over it.

For the majority of non-financial assets, use the “one splits, the other chooses” technique.

Good luck.
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cutterinnj
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Re: Wife left

Post by cutterinnj »

Having just gone through this myself (actually still finishing the formalities) I will absolutely agree that you want to keep the lawyers out as much as possible.

If you can sit down and agree how to split things, you can keep costs (relatively) reasonable.

I have a great lawyer; ex-wife went through two sets of sharks who wasted our time and money. I finally sat down with her in a reasonable fashion, discussed what each of us wanted, had it written up and signed within a month.
Had I not been able to do this, court and expert costs would've easily spiraled into the 6-figure if not 7-figure range.

The more you spend on lawyers, the less goes to you (and your kids). The end result will likely end up being similar regardless.
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Re: Wife left

Post by Jack FFR1846 »

Pay good money for a mean, unrelenting lawyer who will fight to get you everything. Whoever has the better lawyer wins. Skimp on a lawyer, you might as well sign all your accounts over and expect to pay 100% of your future salary to her.
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Re: Wife left

Post by Dottie57 »

Cubicle wrote: Sat Jan 18, 2020 2:03 am I think selling the house is the best option. You would probably qualify for capital gains exclusion so it'd be a tax free event. Having to mess with the IRA and/or get a loan incurs unnecessary expenses.
I agree. Sell the house. Both get anew start in different housing.
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Re: Wife left

Post by 02nz »

Jack FFR1846 wrote: Sat Jan 18, 2020 12:14 pm Pay good money for a mean, unrelenting lawyer who will fight to get you everything. Whoever has the better lawyer wins. Skimp on a lawyer, you might as well sign all your accounts over and expect to pay 100% of your future salary to her.
This seems just a little over the top. A judge is going to order OP to pay 100% of his future salary to his ex-wife? As in, he can't keep anything to feed and clothe and house himself? And is the point "winning"?
Mordoch
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Re: Wife left

Post by Mordoch »

Jack FFR1846 wrote: Sat Jan 18, 2020 12:14 pm Pay good money for a mean, unrelenting lawyer who will fight to get you everything. Whoever has the better lawyer wins. Skimp on a lawyer, you might as well sign all your accounts over and expect to pay 100% of your future salary to her.
As previously basically noted in this thread, this is utterly terrible advice unless the nature of the separation changes and the wife suddenly makes demands like this. (It also appears to ignore the 41 years married part since its questionable the OP would be working that much longer, and at least any court would be skeptical about an alimony demand under the circumstances where both parties would ordinarily expect to retire very soon if not already.)

After 41 years of marriage, barring exceptional circumstances you would expect assets to be split basically 50/50, so spending a whole bunch on lawyers would ordinarily be mostly pointless and reduce the total amount available in the agreement for both parties. (There also is effective value is keeping the separation reasonably amiable when possible.) Basically the main complications are the house and tax implications with the retirement accounts, while a lawyer eventually may eventually need to get involved to make sure there are no problems with how the divorce agreement which can cause issues later (including if after the divorce things turn less amiable and there are any disputes about the divorce agreement).

*Edited to acknowledge a lawyer may not to get involved at all assuming the state allows that and a judge approves the settlement. (The OP should make sure he clearly understands what he is signing though before agreeing to the final settlement to avoid any possible issues later on.)
Last edited by Mordoch on Sat Jan 18, 2020 12:34 pm, edited 4 times in total.
Topic Author
hulburt1
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Re: Wife left

Post by hulburt1 »

We have no lawyers. In Oregon you can do it on the internet and send it to the court. I'm really thinking with Ira to Ira. I will not need to pay the tax's. I already talked to Vanguard and my wife. We meet about everyday. There is not hate between us.
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ResearchMed
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Re: Wife left

Post by ResearchMed »

hulburt1 wrote: Sat Jan 18, 2020 12:30 pm We have no lawyers. In Oregon you can do it on the internet and send it to the court. I'm really thinking with Ira to Ira. I will not need to pay the tax's. I already talked to Vanguard and my wife. We meet about everyday. There is not hate between us.
Very nice if you can both do this without animosity.

But perhaps, before filing, you each might have an attorney give the agreement a quick look, to make sure there aren't any "mistakes", either in terms of what you "intended" or perhaps in what the law actually allows. (Either of those *could* lead to animosity later, should something somehow head south. Or maybe "only" one of you feeling really bad about having goofed.)

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Flora
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Re: Wife left

Post by Flora »

But is $170k IRA to IRA a fair amount or should it be more (since she'll need to likely pay tax on distributions) if you are trying to equalize the home asset (assuming all other assets are equal such as you each have equal balances in Roth IRAs and equal balances in traditional IRAs and employer 401ks, etc.).

Consider transferring to her $200k of your Roth IRA to equalize the $400k home equity if you want to be fair (and all other assets are equal).
student
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Re: Wife left

Post by student »

hulburt1 wrote: Sat Jan 18, 2020 12:30 pm There is not hate between us.
That's good.
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hulburt1
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Re: Wife left

Post by hulburt1 »

Thanks all. She wants what's inside the home plus car. I feel pertly good about the 170000. the house could be less then 400000.
We both will be in good shape going on from here.
Flora
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Re: Wife left

Post by Flora »

Say she pays combined federal and state rate of 22% on the $170k; then you are only giving her $132k. Meanwhile you get up to $250k gain tax-free on sale of your home...

How about giving her $170k Roth?
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Re: Wife left

Post by CrazyCatLady »

Flora wrote: Sat Jan 18, 2020 2:38 pm Say she pays combined federal and state rate of 22% on the $170k; then you are only giving her $132k. Meanwhile you get up to $250k gain tax-free on sale of your home...

How about giving her $170k Roth?
The OP shouldn't negotiate against himself. If she is happy with $170k traditional, that's what he should give. It sounds like she getting other marital items to balance it out. I don't think you can give specific advice on what he should give his wife unless you know all of their assets and how they are being split. I don't think you can just assume he is being unfair.

OP, good job of keeping it friendly and amicable. Way too many don't. However, I agree it's a good idea to have an attorney review to make sure the documents actually do what you intended.
student
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Re: Wife left

Post by student »

CrazyCatLady wrote: Sat Jan 18, 2020 2:47 pm
Flora wrote: Sat Jan 18, 2020 2:38 pm Say she pays combined federal and state rate of 22% on the $170k; then you are only giving her $132k. Meanwhile you get up to $250k gain tax-free on sale of your home...

How about giving her $170k Roth?
The OP shouldn't negotiate against himself. If she is happy with $170k traditional, that's what he should give. It sounds like she getting other marital items to balance it out. I don't think you can give specific advice on what he should give his wife unless you know all of their assets and how they are being split. I don't think you can just assume he is being unfair.

OP, good job of keeping it friendly and amicable. Way too many don't. However, I agree it's a good idea to have an attorney review to make sure the documents actually do what you intended.
+1.
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cashboy
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Re: Wife left

Post by cashboy »

hulburt1 wrote: Fri Jan 17, 2020 11:31 pm
House paid off $400000
OP,

I am not sure how you came up with the $400,000 or $170,000 figures. just some thoughts to be sure there are no hard feelings afterwards (just in case you have not gone through the exercise below, and you want to keep the house).


a couple of years back me and my ex split - friendly. we had a similar issue with a jointly shared house. she did not want the house but i did.

i did my own research on the value of the house and came up with a number of home sale 'comps' (comparable house and what it sold for).
as an example lets say home value of $100,000 (for ease of math).

i then took 6% off of that amount as that is what the real estate commission would be if we sold it and split the proceeds.
that leaves $94,000.

i then paid her half of the amount.
that would be $47,000.

i showed her how i came up with that figure and all was well and considered fair by both of us.


i then added up the value of the contents and paid her half of that as well.
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Re: Wife left

Post by abuss368 »

I am sorry to hear you are separating.
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1130Super
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Re: Wife left

Post by 1130Super »

Flora wrote: Sat Jan 18, 2020 2:38 pm Say she pays combined federal and state rate of 22% on the $170k; then you are only giving her $132k. Meanwhile you get up to $250k gain tax-free on sale of your home...

How about giving her $170k Roth?
We are to give advice to Op, not OP’s soon to be ex wife. If the house is really worth 400k and needs no major repairs it would likely need a few minor things plus the time and effort to deal with those minor things, then knock 6% for a real estate agent, 4% for closing costs.
If she is willing to take untaxed IRA assets OP should do it in a heartbeat. Make sure it is in divorce agreement otherwise it could cause a taxable event.
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Re: Wife left

Post by Wiggums »

hulburt1 wrote: Sat Jan 18, 2020 12:30 pm We have no lawyers. In Oregon you can do it on the internet and send it to the court. I'm really thinking with Ira to Ira. I will not need to pay the tax's. I already talked to Vanguard and my wife. We meet about everyday. There is not hate between us.
I’m glad that you both are able to work things out. Be fair and keep it up.
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Re: Wife left

Post by Flora »

OP asked 'What would you do?', so to answer that question, I would attempt to determine a division of assets that is equalized for tax attributes.
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Re: Wife left

Post by UpperNwGuy »

jubby288 wrote: Sat Jan 18, 2020 7:20 am Sell the house then split the proceeds
This is the normal solution to this problem. It's what I did 20 years ago.
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Re: Wife left

Post by Trader Joe »

"What would you do?"

I would cut ties as quickly as possible and move on with my life asap.
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Re: Wife left

Post by junior »

Jack FFR1846 wrote: Sat Jan 18, 2020 12:14 pm Whoever has the better lawyer wins.
Divorce is not so complicated that a "better lawyer" can trick the judge into not following the law.
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Re: Wife left

Post by BarbBrooklyn »

Been there, done that.

Paying for a good legal advice (if mediation doesn't work; mediation should be done by a competent legal advisor who can set up a QDRO) is well worth the cost.


Wishing you well.
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