‘I’m Divorcing after a Lot of Heartache:’ Should I Suggest My Husband Keep His $200,000 401(K), So I Can Take Our $360,000 House?
I’m divorcing after a lot of heartache, and finally extracting myself from two decades of marriage that included setting aside a very lucrative career to focus on the kids, a cross-country move in between.
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Does it make long-term financial sense to let my husband keep his 401(k) intact while I take the property?
Or does it make more sense to sell the house, pay off our debts, divide what remains, including his 401(k), and then possibly just rent for the remaining 30-odd years of life?
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I asked a divorce attorney for their perspective on your situation. “This is a complicated question with a lot of moving parts,” says Brett Ward, partner and co-chair of the matrimonial and family law group at Blank Rome in New York City. “First, retirement funds will be taxed upon distribution at ordinary income-tax rates (although the money inside the retirement account grows tax-free). So the $200,000 therein is not really worth $200,000 cash.”
“That being said, the gain on a home will be taxed too, but that assumes there will be appreciation and the profit after costs exceeds your $250,000 exclusion (assuming you are eligible for it),” he adds. “In your circumstances, it seems highly likely that the home dollars are worth more than retirement dollars. So if there is an offer to let you keep the home and your husband keep his retirement, I would strongly consider taking it.”
“If you sell the house to pay off the debt and receive retirement assets as your distribution, you end up with less money — based on the tax issues set forth above,” Ward adds. “But the major question becomes whether you can service your share of the debt.”
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"‘I’m Divorcing after a Lot of Heartache:’ Should I Suggest My Husband Keep His $200,000 401(K), So I Can Take Our $360,000 House?" by Quentin Fottrell was published in MarketWatch on June 6, 2024.