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Cars as assets

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LiteWait

Junior Member
What is the name of your state (only U.S. law)? CT

I just wondered if a cars value is considered when assets are split in a divorce. (for example) if I have a 1989 Chevy Malibu and my wife has a 2009 Lexus SUV is the blue book value (obviously a huge disparity) taken into account?
 


mistoffolees

Senior Member
What is the name of your state (only U.S. law)? CT

I just wondered if a cars value is considered when assets are split in a divorce. (for example) if I have a 1989 Chevy Malibu and my wife has a 2009 Lexus SUV is the blue book value (obviously a huge disparity) taken into account?
Yes, cars are assets and the marital value has to be split. HOWEVER, what really matters is the equity. Unless you paid cash or made a huge downpayment, chances are that the loan on the Lexus is at least equal to the current book value, so there's no equity. Your Malibu is probably paid off, so there is probably at least a LITTLE equity. So, in principle, if you keep the Malibu and she keeps the Lexus, you could be paying her a little bit to equalize things.

The balance to that, of course, is that if she keeps the Lexus, she needs to make the payments on it. Make sure that she arranges with the bank to take your name off the loan. If they won't agree to do that, ask to receive a copy of the monthly statement so you can be sure that she's making payments and not damaging your credit. If she misses a payment, take action immediately.
 

nextwife

Senior Member
Yes. Each free and clear car has a different value, and whomever gets the Chevy should get additional assets for a combined total equivilant to the Lexus value.
 

mistoffolees

Senior Member
Both cars are owned outright. No loans, nothing.
Then you take the current value of the Lexus, subtract the current value of the Malibu, and divide by 2. If she keeps the Lexus, she has to pay you that amount of money - either in cash or in other assets.

Do not, however, accept pre-tax assets (such as a 401K) as equivalent in value to the car. You'd have to make a correction using your best estimate of tax rates. OTOH, the car is a depreciating asset and a 401K is appreciating, so it might not be a major issue if you do that.
 

LdiJ

Senior Member
Then you take the current value of the Lexus, subtract the current value of the Malibu, and divide by 2. If she keeps the Lexus, she has to pay you that amount of money - either in cash or in other assets.

Do not, however, accept pre-tax assets (such as a 401K) as equivalent in value to the car. You'd have to make a correction using your best estimate of tax rates. OTOH, the car is a depreciating asset and a 401K is appreciating, so it might not be a major issue if you do that.
I am trying to be marginally respectful of your arguments regarding retirement assets vs other assets despite the fact that I think that your arguments are virtually meaningless. (speculating as to future taxability)

However in this case a retirement asset that will appreciate vs a depreciating asset such as a car, is a clear cut indication that unless the party receiving a portion of the retirement asset would be foolish enough to cash it out instead of rolling it over into a retirement account of their own, the party receiving the retirement asset would come far out ahead of the party keeping the car.

AND...if they were foolish enough to cash it out...that should be THEIR issue.
 

mistoffolees

Senior Member
I am trying to be marginally respectful of your arguments regarding retirement assets vs other assets despite the fact that I think that your arguments are virtually meaningless. (speculating as to future taxability)
We've hammered this out before - and, as usual, you refuse to admit you are wrong.

The fact is that an after tax asset means you've already paid the tax on it so it's worth the full value. A pre-tax asset (such as a retirement account) means that you still have to pay tax on it - so you'll end up with less than the face value unless the tax rate is zero.

If you want to bank on your tax rate being zero, go ahead and consider them equal. But most rational people realize that they're going to pay SOME taxes on future income - so there is a real difference between pre-tax and after-tax income. Granted, it's impossible to know exactly how large that difference is, but it's clear that tax rates will be greater than zero for most people so there IS a difference.

The fact that you insist that pre-tax income can be evenly traded for after tax income simply because you don't know the future tax rates calls into question your entire facade as a professional tax expert. This is trivial tax 101 - and the fact that you can't even get the basics right is a major issue. I sure as heck would never hire a tax account who doesn't understand that $100 of pretax income has a different value than $100 of after tax income.
 

LdiJ

Senior Member
We've hammered this out before - and, as usual, you refuse to admit you are wrong.

The fact is that an after tax asset means you've already paid the tax on it so it's worth the full value. A pre-tax asset (such as a retirement account) means that you still have to pay tax on it - so you'll end up with less than the face value unless the tax rate is zero.

If you want to bank on your tax rate being zero, go ahead and consider them equal. But most rational people realize that they're going to pay SOME taxes on future income - so there is a real difference between pre-tax and after-tax income. Granted, it's impossible to know exactly how large that difference is, but it's clear that tax rates will be greater than zero for most people so there IS a difference.

The fact that you insist that pre-tax income can be evenly traded for after tax income simply because you don't know the future tax rates calls into question your entire facade as a professional tax expert. This is trivial tax 101 - and the fact that you can't even get the basics right is a major issue. I sure as heck would never hire a tax account who doesn't understand that $100 of pretax income has a different value than $100 of after tax income.
And again, my entire firm laughs at you because absolutely no one can have any knowledge (unless the parties are fairly close to retirement) of what anyone's possible tax situation could be at retirement.

You main argument is that someone should not give up equal retirement assets to other assets because SOMEDAY that person might have to pay taxes on the share of the retirement assets that they keep...when there is no guarantee whatsoever that they will ever pay taxes on those assets.
 

Ohiogal

Queen Bee
How did she pay cash for the lexus? Where did she get that money to pay for the car? Was it from an inheritance? Savings before marriage?
 

mistoffolees

Senior Member
And again, my entire firm laughs at you because absolutely no one can have any knowledge (unless the parties are fairly close to retirement) of what anyone's possible tax situation could be at retirement..
Then your entire firm should be fired.

The only way that pre-tax and after-tax assets are equivalent is if the tax rate is ZERO. Do you expect that the tax rates will be zero in the future?

For any non-zero tax rate, pre-tax and after-tax assets have different value. I don't have any way of knowing with certainty what the tax rates will be in the future, but betting that they'll be zero is an incredibly stupid bet.

The fact that you keep promulgating that inane nonsense really calls your professional skills into question. Your argument that one shouldn't even consider tax consequences of an action simply because you don't know the exact future tax rates reeks of criminal incompetence.
 
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mistoffolees

Senior Member
How did she pay cash for the lexus? Where did she get that money to pay for the car? Was it from an inheritance? Savings before marriage?
Good point. If it was from non-marital funds, then my advice above would be in error. He would not be entitled to any of the car's value if it's from an inheritance or savings before marriage.
 

LdiJ

Senior Member
Then your entire firm should be fired.

The only way that pre-tax and after-tax assets are equivalent is if the tax rate is ZERO. Do you expect that the tax rates will be zero in the future?

For any non-zero tax rate, pre-tax and after-tax assets have different value. I don't have any way of knowing with certainty what the tax rates will be in the future, but betting that they'll be zero is an incredibly stupid bet.

The fact that you keep promulgating that inane nonsense really calls your professional skills into question. Your argument that one shouldn't even consider tax consequences of an action simply because you don't know the exact future tax rates reeks of criminal incompetence.
If I choose not to take distributions before 70 1/2 and I die before 70 1/2 I will never pay tax on my retirement funds. Or, if I die at 75 after having taken only minimum distributions after age 70 1/2 I will pay tax (maybe) on only a small portion of my retirement funds.

If my minimum distribution of retirement funds is my only income other than social security, and my minimum distribution is less than my standard deduction and my personal exemption I will never pay tax on my retirement funds. At least 80% of my retired clients fall in this bucket.

If my minimum distribution is more than my standard deduction and my personal exemption, I will pay a very low rate on ONLY the amount that exceeds my standard deduction and personal exemption....and it would take a lot of minimum distribution to exceed the lowest marginal tax bracket...about 15% of my remaining retired clients fall in this bucket.

Only about 5% of my retired clients pay any real tax on retirement assets...and then its only on the required minimum distributions.

My clients who inherit from parents who passed away generally inherit significant retirement assets (upon which their parents never paid any tax)...and if they follow my advice, they roll those assets over into retirement accounts of their own, therefore deferring tax for themselves.

On top of that, tax law changes significantly over 20 or 30 years.

So tell me Misto...how the heck at 35 or 40 could anyone POSSIBLY or even REMOTELY determine if they will EVER pay ANY tax on ANY significant portion of their retirement funds? They cannot.

So...all of your ranting and raving about retirement funds and tax, just gives divorcing people one more thing to fight over and ratchet up their attorney fees in a divorce.
 

mistoffolees

Senior Member
So tell me Misto...how the heck at 35 or 40 could anyone POSSIBLY or even REMOTELY determine if they will EVER pay ANY tax on ANY significant portion of their retirement funds? They cannot.

So...all of your ranting and raving about retirement funds and tax, just gives divorcing people one more thing to fight over and ratchet up their attorney fees in a divorce.
And your advice causes people to make stupid decisions.

Yes, there are scenarios where there would be no tax due - but I'm not planning to take zero distributions by 70.5 and then die precisely at 70.5. The odds of zero tax are small, but even if they were significant, it doesn't change the fact.

There's also a significant chance (for most people, almost a certainty) that there will be SOME taxes upon retirement. Your argument that this should not even be considered just because it's hard to quantify is just plain idiotic.

FURTHERMORE, there's more than tax involved. If I have $10 K in a cash account and you have $10 K in a retirement account, mine is liquid and I can use it for anything I wish. If you want to use your money before retirement, you have to pay a severe penalty, as well as taxes to do so.

Only a fool considers an after tax asset to be completely equivalent to one in a pre-tax retirement account. The fact that you do so - and continue to argue for such an indefensible position - makes me certain that I would never in a trillion years use you for financial advice. Your clients would be best served by you quitting the business and filling potholes for a living.
 

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