Alicia and Rafel are in the process of negotiating a divorce agreement to be finalized in 2022. They both worked
Alicia and Rafel are in the process of negotiating a divorce agreement to be finalized in 2022. They both worked during the marriage and contributed an equal amount to the marital assets. They own a home with a fair market value of $400,000 (cost of $300,000) that is subject to a mortgage of $250,000. They have lived in the home for 12 years. They also have investment assets, all held more than one year, with a cost of $160,000 and a fair market value of $410,000. As a result, the net worth of the couple is $560,000 ($400,000 - $250,000 + $410,000). Alicia would like to continue to live in the house. Therefore, she has proposed that she receive the residence subject to the mortgage, a net value of $150,000. In addition, she would receive $17,600 each year for the next 10 years, which has a present value (at 6% interest) of $130,000. Rafel would receive the investment assets. If Rafel accepts this plan, he must sell one-half of the investments so that he can purchase a home. Assume that you are counseling Alicia. Explain to Alicia whether the proposed agreement would be “fair” on an after-tax basis.
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