Why can two assets with the same dollar value have different after-tax values?

What "after-tax value" means

After-tax value is the amount you actually keep after all taxes and costs are paid. It's the real value of an asset - not the number on the statement, but what you'd have in your pocket if you liquidated it.

The three factors that create the gap

1. Tax basis

Tax basis is what you originally paid for an asset (or what it was worth when you acquired it). When you sell, you pay tax on the gain - the difference between the sale price and the basis.

• Low basis - the asset has appreciated significantly; selling triggers a large tax bill
• High basis - the asset hasn't appreciated much; selling triggers minimal tax
• Zero basis - the entire sale price is taxable (common with some inherited assets or assets where basis wasn't tracked)

2. Tax treatment

Different types of assets are taxed differently:

• Brokerage accounts - capital gains tax (15% or 20% federal, plus state tax) on the gain
• Traditional retirement accounts - ordinary income tax on the full balance upon withdrawal
• Roth retirement accounts - no tax on qualified withdrawals
• Savings accounts - no tax on the principal; interest is taxed as ordinary income
• Real estate - capital gains tax on the gain, subject to the primary residence exclusion

3. Selling costs

Some assets have costs to liquidate:

• Real estate - realtor fees (5–6%), closing costs, staging, repairs
• Business interests - broker fees, legal costs, transition costs
• Investments - transaction fees (usually minimal)
• Retirement accounts - no selling costs, but early withdrawal penalties may apply

Examples of the gap

Brokerage account vs. savings account

• $100,000 brokerage account with a $40,000 basis: selling triggers capital gains tax on $60,000. At 15% federal + ~5% Utah state = ~20%, the tax is $12,000. After-tax value: $88,000.
• $100,000 savings account: no tax on the principal. After-tax value: $100,000.

The gap: $12,000.

Traditional IRA vs. Roth IRA

• $100,000 traditional IRA: fully taxable upon withdrawal. At 24% federal + ~5% Utah state = ~29%, the tax is $29,000. After-tax value: $71,000.
• $100,000 Roth IRA: no tax on qualified withdrawals. After-tax value: $100,000.

The gap: $29,000.

House vs. retirement account

• $100,000 home equity (home worth $400,000, mortgage $300,000): selling costs of ~$24,000 (6% realtor + closing). If the gain exceeds the $250,000 exclusion, capital gains tax applies. After-tax value: ~$76,000 or less.
• $100,000 401(k): taxable upon withdrawal. At 29% combined tax, after-tax value: ~$71,000.

The gap depends on the home's basis and gain, but the point is clear: face value is not after-tax value.

How this affects divorce settlements

In a divorce, if one spouse receives the brokerage account and the other receives the savings account - both at $100,000 - the split looks equal. But the spouse with the brokerage account has $12,000 less in after-tax value. Over time, if both assets grow, the gap widens.

The same applies to retirement accounts: a traditional 401(k) and a Roth IRA with the same balance are not equal. The traditional account carries a future tax bill; the Roth does not.

How to compare assets fairly

1. List every asset and its current market value
2. Determine the tax basis (for investments and real estate)
3. Identify the tax treatment (capital gains, ordinary income, tax-free)
4. Calculate the estimated tax upon sale or withdrawal
5. Subtract selling costs (for real estate and businesses)
6. Compare after-tax values, not face values

Factors that typically matter

• Tax basis - determines the capital gains tax when sold
• Tax treatment - capital gains vs. ordinary income vs. tax-free
• Selling costs - realtor fees, closing costs, transaction fees
• Pre-tax vs. Roth - traditional retirement accounts are taxable, Roth accounts are not
• State tax - Utah's flat income tax applies to both capital gains and ordinary income
• Time horizon - assets held longer may have more appreciation and more tax
• Liquidity - some assets are harder and more expensive to sell

Documents commonly reviewed

• Brokerage statements - showing cost basis and unrealized gains
• Retirement account statements - distinguishing traditional vs. Roth
• Tax returns - to estimate effective tax rates
• Mortgage and closing documents - showing the home's purchase price and basis
• Home appraisal - current market value
• Investment cost basis reports - from your broker
• Prior year tax filings - to confirm capital gains rates

Common mistakes and misconceptions

• Comparing face values instead of after-tax values - the most common mistake
• Not knowing the tax basis - without the basis, you can't calculate the tax
• Treating traditional and Roth as equal - they're not
• Ignoring selling costs - real estate has significant costs to liquidate
• Forgetting state tax - Utah's income tax applies to capital gains and retirement withdrawals
• Not projecting forward - the gap grows over time as assets appreciate differently

When a professional may be useful

A CDFA® or tax professional can help by:

• Calculating the after-tax value of every asset in the marital estate
• Identifying the tax basis of investments and real estate
• Distinguishing pre-tax from Roth retirement accounts
• Estimating the tax impact of selling or liquidating each asset
• Factoring in selling costs for real estate and business interests
• Comparing assets on an after-tax basis to ensure equitable division
• Projecting the long-term impact of the division over 5, 10, and 20 years

Davis Schuler & Associates includes tax analysis as part of our divorce financial analysis services. We are Enrolled Agents (EA) and can represent clients before the IRS.