Kirk Drennan Law

Tax Implications of Property Transfers During a Divorce

The decisions you make in a divorce can affect you for years to come. This is particularly true if your divorce involves the transfer of high-value assets, since these transfers could impact you on your taxes. However, unless you discuss your case with a divorce attorney and financial planner, it’s impossible to know which decisions will protect you financially.

Ready to take the first step and discuss your divorce with an attorney? The team at Kirk Drennan Law is here to help. Call us at 205-803-3500 to schedule a consultation now.

Transfers During Divorce

Per the IRS, spouses and ex-spouses can transfer property to each other as part of a divorcee agreement without having to recognize gains or losses on the transaction. This allows the parties to divide property fairly without having to take a hit on their taxes the following year.

Property transfers that happen between the date of the divorce decree and the one-year anniversary of the divorce decree are assumed to be related to the divorce. After the year mark and up until six years after the divorce decree, property transfers can still be considered divorce-related if they are listed in the divorce decree. Once you pass the six-year anniversary of the divorce decree, property transfers are no longer assumed to be related to the divorce in any way.

Transfer as a True Sale

There are some situations in which it is more beneficial to treat a transfer as a true sale instead of a divorce-related transfer. This depends largely on the value of the property, how long the person receiving the property plans on holding it, and the realized gains on the property. This may be relevant for some high-asset divorces, so it is worth discussing with your attorney and financial planner.

When Property Transfer is Noted in a Prenuptial Agreement

You have to cover your bases when negotiating a divorce. Consider the terms of tax-free transfers during divorce as described above. If a transfer happens within one to six years after the divorce, it is considered divorce-related only if it is described in the divorce decree.

This may not always happen if property is described in a prenuptial agreement. If a specific division of assets is laid out in a prenuptial agreement, the divorcing partners may simply divide assets without listing it in the divorce decree. However, if this happens more than one year after the divorce decree, those transfers may not be considered divorce related. This may force one or both parties to suffer penalties on their taxes for those transfers. Outlining the transferred property in the divorce decree, even if it is listed in the prenuptial agreement already, may help avoid this issue.

Tax Concerns of Transferred Property

Even if you don’t need financial planning help for the divorce itself, you may find it helpful to consult with one as you plan for post-divorce life. Depending on which assets are transferred, you may need to change your tax exemptions and payments to accommodate your new financial status. For example, if you receive a rental property as part of your divorce agreement, you will need to consider the tax implications of being a landlord. If you meet with a financial planner early in the process, you’ll know how to manage your funds appropriately and take care of your new assets.

How a Divorce Attorney Can Help

Regardless of which assets are being transferred, you absolutely need to discuss your options with a divorce attorney. If your ex-partner is represented by an attorney and you are not, you’ll likely end up being taken advantage of. Unfortunately, you won’t know until taxes come due the following year. When you work with an experienced divorce attorney, you can feel confident that your lawyer has your best interests in mind. This allows you to begin the healing process during this challenging time.

Discuss Your Legal Issues with Kirk Drennan Law

As you get ready to work through the divorce process, remember that you don’t have to do it alone—and you shouldn’t. There’s a lot at stake in a divorce, and with proper legal assistance, you can best prepare for your fresh new start. To find out how Kirk Drennan Law can help, schedule a consultation now by calling us at 205-803-3500 or contacting our team online .

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Divorce Mortgage Advisors

  • Transferring House Title Between Spouses During Divorce

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Divorce Mortgage Advisors

Your home is an extremely valuable asset – and it may be the most valuable asset that you possess.  When you divorce, that asset must be split according to the terms of your settlement.  But how?

Reaching agreement on how it should be divided can be painful, even in a community property state like California.  But if you’re diligent, you can get through it with few delays and a minimal amount of stress.

As part of that process, here’s what you need to know about transferring the house title as part of your divorce.

What are the steps for dividing real estate between spouses as part of a divorce?

Defining how a married couple can hold title to a property, what are the different ways i can transfer ownership, the preliminary change of ownership form, who prepares these documents, how long does a house transfer take, are there tax consequences of transferring ownership, how does a deed transfer affect a mortgage, should i transfer ownership before the divorce is final.

Although there will be some differences and nuances when dividing real estate as part of a divorce, the general framework for this type of transaction is basically the same.

Before you start the transfer process, you need to confirm who is currently on the title to the property.  Just to be safe, you shouldn’t automatically assume it’s just you and your spouse that hold title to the house.  In some cases, the title may have changed throughout your marriage, and you need to be sure about the current authenticity and accuracy of the property title before you can move forward with a transfer.

You can hire a real estate lawyer or a title search company to verify the information for you.  It might be easier than attempting to do it yourself, because public records can be complicated and confusing, and you can’t afford to make mistakes.

However, if you do decide to verify the title on your own, you’ll need to go to the county recorder’s office in the county where the property is located.  The recorder is responsible for maintaining records such as deeds and other documents that affect title to the property.

Once you have found the records for your property, you’ll want to confirm that you and your spouse are the only ones who hold legal title to that property.  Be sure to check the chain of title to confirm it was done legally and properly.

You’ll also want to check and make sure there are no encumbrances on the land.  This might include liens, covenants, easements, unpaid taxes, or mortgages.

Then, determine how you want the title to be held going forward.

If transferring before a divorce, the spouse will need to hold title as “married man/woman as their sole and separate property.” If transferring title after divorce, the spouse can hold the title as “Unmarried man/woman.”

Once you have decided how the property is to be divided, you’ll need to create a new deed to transfer the property.  That new deed will need to be submitted to the city or the county where the property is located so that it can be recorded.

The deed must be in writing and must list the spouses involved in the transfer.  The property must be identified using an address or a legal description.  It will need to be signed in front of a notary public to be legal.

You’ll also keep a copy of the recorded deed to prove that you own the property.

In a marriage, two people typically hold title to a property, either as tenants in common, joint tenants, or tenants by entireties.  When this is the case, both must agree to sell, mortgage, or will the property.

In most cases, a married couple will hold title to a property either by joint tenancy or tenancy by the entireties.  Ownership by tenancy in common is less frequent.

  • Joint tenancy . You and your spouse own the property together, and if one of you dies, the property automatically goes to the surviving spouse. This is also often called joint tenancy with rights of survivorship. Joint tenancy can be used any time two or more people own property and is not limited to spouses.
  • Tenancy by the entireties . The same as joint tenancy, but only applies between spouses and is not used in all states.
  • Tenancy in common.  Also used when two or more people own property. However, if one of the owners dies, that person’s interest in the property goes to his or her heirs and not automatically to the other owners.

There are multiple ways to transfer property ownership in a divorce.  All of them involve changing the deed, which is the ownership document that legally defines who owns the property.  By changing the deed, you can change who owns the property.

Transferring the title gives one spouse sole ownership of the property.  After the fact, they are free to sell, mortgage, or place it in a will or trust to give the property to any person he or she desires.

The specific documents you need to have prepared and signed will depend on which type of transfer you choose.  Regardless of the method, all deed paperwork needs to be signed in the presence of a notary public.

Two of the most common ways to transfer property in a divorce are through an interspousal transfer deed or quitclaim deed.

When spouses own property together, but then one spouse executes an interspousal transfer or a quitclaim deed, this is known as transmutation .

Interspousal Transfer Deed

This type of deed transfers the title of a property between a married couple.  It can be used to avoid tax liability when transferring property. Usually, when the title to a property is transferred, the county may impose a transfer tax and reassess the value of the property, leading to potentially higher taxes.

An interspousal transfer deed is exempt from transfer taxes and is a cost-efficient way to transfer property between spouses.

Other than divorce, interspousal transfer deeds are often executed when spouses are looking to refinance a house, but one spouse has bad credit, this jeopardizing loan approval.

In cases where the house is separate property, it can be turned into marital property by executing an interspousal transfer deed and adding a spouse to the deed.

Quitclaim Deed

This type of deed transfers whatever interest a spouse has in a property to the other spouse.  The main difference between a quitclaim deed and an interspousal transfer deed is that a quitclaim deed comes with no guarantees about property ownership.

With this type of deed, you get no guarantees about ownership of the property.  You get the title strictly “as is.”

This process is quick and straightforward.  Many people are capable of doing this on their own.  Forms are readily available online or at an office supply store.  After you complete the form, sign it, have it notarized and record it at the county recorder’s office.

When a spouse uses a quitclaim deed to give up his or her interest in the house, they may still be responsible for half of the mortgage debt because liability can’t be transferred through a quitclaim deed.

You need to know that a deed and a mortgage are two different things.

Also, if you sign a quitclaim deed, you are forfeiting the right to sell and profit from a sale of the home in the future.

In addition to deed paperwork, you will also need to sign a Preliminary Change of Ownership form (PCOR).  This document must be filed with each conveyance in the County Recorder’s office for the county where the property is located in all 58 California counties.

This form is filed with the State Board of Equalization  and is used to determine the taxation of real property so that the appropriate tax is attached and collected by the tax collector’s office. It’s critical to fill out and submit this form promptly.

When information changes on the grant deed, new owners have a limited deadline from the date of transfer to submit documentation.

When a transfer takes place between spouses, taxes, and assessed value will not be changed, but you still need to inform the state that this is the case.

If you fail to do so, you could be subject to a $5,000 fine for your principal residence or a $20,000 penalty for any property that is not your principal residence.

Typically, you, an attorney, or an escrow office will prepare property transfer documents.

Forms for California quitclaim deeds vary from county to county.  Be sure to get the form from the county where the property is located.

It’s probably better to have a professional prepare the paperwork since self-prepared deeds may not always be insurable.  An uninsured deed is a deed that has not been examined by a title company.  This can be a problem when trying to sell or refinance in the future.

If the spouse who retains an interest in the property wants to do either of these at some point, the ex-spouse who was removed from the title may need to sign an uninsured deed affidavit to verify that the transfer was voluntary, valid and authentic, free from any coercion or duress.

A title company or an escrow company can prepare a version of the affidavit that will then need to be signed and notarized.

The change takes effect immediately as soon as the county recorder’s office receives the signed and notarized documents. You will have to pay a filing fee, which varies from county to county and may run as high as $150.

It depends.  Most counties in California do not levy a transfer tax for transfers between spouses.

The same applies for reassessments, which are also done at the discretion of the tax assessor’s office.  However, typically, a reassessment is not triggered when a title transfers between spouses.  This means generally, there are no immediate tax consequences to either party.

Also, IRS Code Section 1041 allows any-spouse to-spouse transfer of property that is related to the divorce to be tax-free. That means a lump sum payout, transferring titles, refinancing, and buying out the other person’s interest can be treated as tax-free transactions.  Be aware that rules are different if third parties are involved.

Things can be more complicated if an ex-spouse later decides to sell the property he or she received in a divorce.  When the property appreciates post-divorce, the seller may owe capital gains taxes.

There are special tax rules apply to the sale of houses after divorce to help divorced homeowners avoid paying capital gains taxes.

In most cases, a person selling his or her home after a divorce can exclude up to $250,000 in capital gains if he or she has owned and lived in the house as a primary residence for at least two of the last five years. The two-year time frame is cumulative.

Also, to be eligible for the exclusion, the seller must not have excluded capital gains on the sale of another home in the past two years.

There are some instances when property transfers between spouses may trigger income tax liability in California.  To avoid these types of obligations to the Franchise Tax Board or the IRS, it’s best to consult with a CPA, financial planner, or a tax attorney to make sure you don’t wind up with any unintended financial consequences.

Even if you transfer your interest in a property to the other spouse, if you and your spouse were both obligated on the mortgage, you will still maintain that obligation.

Ownership and debt are treated as two separate issues.   Transferring title to a house does NOT transfer the mortgage.

Part of the resolution to this will be in the settlement agreement.  If one spouse is awarded the property, that spouse may also be ordered by the court to pay the mortgage and other related house expenses, such as taxes and insurance.

In other settlements, both spouses may be obligated to share in the payment of the mortgage and expenses (especially if children are involved), or if one party is awarded the property, the other spouse may still be responsible for the mortgage and expenses.

If the other spouse is obligated to pay the mortgage as part of the settlement agreement, you can contact the lender, provide proof of the changed obligation, and see if they will release you.  That isn’t always the case, though.  That’s because if your ex-spouse defaults on the mortgage, the lender can still take action against both of you.

You can go back to the court that granted the divorce, and even though the court can’t release you from the mortgage, it can order your ex-spouse to reimburse you for paying to the lender or re-structure the property division settlement to compensate you.

You may also try to structure a settlement agreement in such a way that a spouse must either sell the home or refinance it immediately after the divorce to remove you from the mortgage obligation.

There is no absolute right or wrong answer to this question.  Much of this has to do with the level of trust you have between you and your spouse.  If your divorce is amicable, then you might be okay in moving forward before a divorce is final.

But in cases where there are disagreements, or negotiations turn sour, if you have already transferred title, you are giving up crucial negotiating leverage.

Consider consulting with a family law attorney to decide what the best course of action is for your case.

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Property Transfers in Divorce: Transferring House Titles

Your new house, real estate agent holding house key to his clien

Finalizing a divorce takes time. Even once the parties have agreed on all relevant matters–division of property, alimony, child custody, child support–there are additional steps to take. Parties need to adjust their tax filings, they may need to change their names, and they have to effectuate the transfer of property. Splitting the amounts in shared bank accounts may be a simple process, but distributing other types of property require additional work. The family home is often a hotly contested piece of marital property. Once ownership has been decided, how do you actually finalize the transfer in a divorce? Continue reading to learn about the title transfer process during divorce. If you have any questions, or if you need assistance with a New Jersey divorce or equitable division of property, call a knowledgeable New Jersey marital property division attorney .

Options for Distributing the Family Home

There are a few different ways that parties or the court may decide to treat the family home. Which option you choose determines the process for distribution. The most common outcomes for the family home in a divorce are the following:

  • Sell the marital home and divide the sale proceeds between the parties in accordance with a settlement agreement or as determined by the court.
  • Distribute the house to one spouse by having them buy out the other spouse’s home equity.
  • Distribute the house to one spouse and, in exchange, the other spouse will receive other assets of equivalent value or otherwise as agreed upon.
  • Keep ownership status quo and allow the spouse with primary custody of the children to continue residing in the house until the last child reaches adulthood, at which time the house will be sold and the proceeds split between the spouses.

Often, the simplest choice is to sell the house and split the proceeds. However, if the parties decide that one spouse will keep the house after the divorce, the parties will need to effectuate a transfer of title.

Taking Advantage of Tax Benefits When Transferring House Title

If you have decided that one spouse will keep the house in their name, you’ll need to transfer the title. Different transfer methods have different tax consequences, so it’s important to discuss your options with your divorce attorney as well as your financial advisors.

Federal law provides that transfers “incident to divorce” will not be subject to income tax. Transferring property to your spouse while married will also avoid income or gift taxes. Typically, if the transfer occurs within a year of the divorce or is otherwise related to the divorce–such as if the transfer is provided for in a marital settlement agreement–you’ll get the tax benefits.

New Jersey law also provides an exclusion to its realty transfer tax for property transferred within 90 days of divorce, and the law carries a similar exclusion for transfers between spouses. Discuss your plan for transfer with your attorney to ensure you avoid unnecessary taxes.

There may be certain circumstances under which it’s preferable to treat the transfer as a “true sale” and wait until more than a year after the divorce, even though you’ll forego the tax breaks. For example, effecting a true sale will adjust the house’s market value for the purposes of capital gains. If the property is a second home rather than a primary residence, and the new owner might later sell the property, the capital gains tax on the subsequent sale might be much higher if the parties transferred the property as part of the divorce.

Changing Title to the Home

Assuming you have decided to transfer the house as part of the divorce settlement, you’ll need to actually transfer the title. If you are keeping the house, that means you will be removing your spouse’s name from the deed as well as the mortgage.

Often, the easiest way to transfer title is to execute a “quitclaim deed.” A quitclaim deed is the simplest deed of transfer, transferring title and legal interests in real property from one party to the other without any warranties. You and your spouse will execute a new deed with you and your spouse as grantors and you alone as grantee (or, if your spouse had sole title, from your spouse as grantor to you as grantee). You’ll sign the document in front of a notary and record the document with the county clerk. Your attorney can walk you through the process and which documents you’ll need to obtain to prepare for the transfer.

If you and your spouse are both on the mortgage, you’ll also need to remove your spouse’s name from the mortgage. That process can be more complex. You might need to refinance the mortgage into your name. Your property division lawyer can help you choose a bank for refinancing and get the process started.

Call a Knowledgeable New Jersey Divorce and Marital Property Division Attorney Today

If you’re considering divorce or dealing with issues involving parental rights, child custody, equitable division of property, alimony/spousal support, child support, or other family law matters in New Jersey, contact the skilled and dedicated Union family law attorney John B. D’Alessandro for a consultation.

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Tax-Free Transfers Incident to a Divorce – What Qualifies?

By: Kirstine Fors

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Tax-Free Transfers Incident to a Divorce – What Qualifies?

Dividing assets in a divorce is rarely a simple matter. It gets even more complicated when there is a transfer of property between spouses after a divorce.I

When transferring assets as part of a negotiated settlement or divorce proceeding, it might not be possible to complete the transfer immediately due to financial or logistical reasons.

Timing is everything , as the saying goes.

It’s important to understand the rules regarding the transfer of property between spouses after a divorce, and how the timing impacts how – and whether – transactions are taxed.

Does the Transaction Qualify As a Section 1041 Transfer?

A good starting point is to determine whether the transaction qualifies as an IRC Section 1041 transfer.

Internal Revenue Code Section 1041 lays out the rules for property that is transferred between spouses who are divorcing or are divorced. It provides that a property transfer is incident to the divorce if it occurs within one year of the divorce, or if it is related to the cessation of the marriage.

If the transaction qualifies as a Section 1041 transfer, it is not subject to taxation and the basis of the asset carries over to the receiving spouse.

Special Rules Relating to Timing of Transfer

There are special rules relating to the timing of the transfer. To achieve the most advantageous financial outcome for a divorcing client, family law attorneys should consider how these special rules apply to their clients.

The One-Year and Six-Year Tests

Let’s look at some key property transfer benchmarks on the divorce timeline:

Six Year Test for Transfer of Property in Divorce

Source: Thomson Reuters Checkpoint, 601 Applicability of IRC Sec. 1041

Transfers Taking Place Within One Year of the Divorce

No support or evidence is required when a transaction takes place within one year of the divorce. The presumption is that property transferred between former spouses is merely a shifting around of jointly owned assets and therefore, is not subject to taxation. This rule applies even if the transferred property was acquired after the divorce was final.

Consider this example:

John and Beth were divorced in July 2017. In January 2018, John purchased stock for $50,000. John then transferred the stock to Beth in June 2018, which increased in value to $60,000, to satisfy an obligation to her as part of the divorce settlement. No gain or loss would be recognized by John or Beth for this transaction.

Transfers Taking Place Between the One-Year and Six-Year Anniversary of the Divorce

A transfer of property that occurs between the one-year and six-year anniversary must be made pursuant to a divorce or separation instrument to be presumed related to the cessation of the marriage and qualify for Section 1041 treatment. A divorce or separation instrument includes a decree of divorce or separate maintenance, a written separation agreement, or other court decree.

It is also worth noting that a divorce instrument includes amendments or modifications to the instrument. A divorce instrument that does not provide for a transfer of property can be later modified to include one and will therefore ensure that no gain or loss will be recognized.

Private Letter Ruling 9306015 provides an example of a transfer of property found to be related to the cessation of the marriage:

Mr. and Ms. Young divorced in 1988. In 1989, they entered into a settlement agreement, which provided that Mr. Young deliver to Ms. Young a promissory note for $1.5 million, which was secured by 71 acres of land. In 1990, Mr. Young defaulted on this obligation and entered into a later settlement agreement to transfer 59 acres of land (42.3 acres of the original 71 acres and 16.7 acres of land adjoining that tract). In accordance with the later settlement agreement, Mr. Young retained an option to repurchase the land for $2.2 million on or before December 1992. Mr. Young assigned the option to a third party, who exercised the option and bought the land from Ms. Young for $2.2 million. No gain or loss was recognized on the transfer of the property from Mr. Young to his former spouse. Ms. Young took the marital basis of the land and recognized a gain on the subsequent sale to a third party.

Transfers Taking Place After the Six-Year Anniversary of the Divorce

In general, property transferred more than six years after the divorce is final does not qualify for Section 1041 treatment.

Any transfer that is not pursuant to a divorce or separation instrument and occurs more than six years after the divorce becomes final is presumed to be unrelated to the cessation of the marriage. While the IRS guidance is unclear, there are special circumstances in which property transfers after the six-year mark would qualify as a tax-free transfer.

The presumption that a transfer was not related to the cessation of the marriage “may be rebutted only by showing that the transfer was made to effect the division of property owned by the former spouses at the time of the cessation of the marriage. For example, the presumption may be rebutted by showing that (a) the transfer was not made within the one- and six-year periods described above because of factors which hampered an earlier transfer of the property, such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage, and (b) the transfer is effected promptly after the impediment to transfer is removed.” (Source: Section 1.1041-1T(b), Q&A-7 of the Temporary Income Tax Regulations)

There is a documented case where the presumption that the transfer was not related to the cessation of the marriage was clearly rebutted.

In Private Letter Ruling 9235026 (May 29, 1992), the IRS ruled that the transfer of the wife’s interest in business property to her ex-husband was incident to the divorce even though the transfer occurred more than six years after the divorce. It was determined that the transfer was delayed because of a dispute over the purchase price and payments terms. After the disputed factors were resolved, the transfer was promptly completed. Temp. Treas. Reg. §1.1041-1T, A-7 specifically provides that the presumption may be rebutted only by showing that the transfer was made to effect the division of property owned by the former spouses at the time of the cessation of the marriage, and there were factors that hampered an earlier transfer of property. 

To qualify for Section 1041 treatment, a transfer of property should take place before the six-year anniversary of a divorce and be supported by a divorce or separation agreement after the one-year anniversary of the divorce. In circumstances where the property transfer cannot be completed within a six-year time frame, the best support is a written divorce or separation agreement documenting the contemplated transfer, and support for why the transfer could not be completed during the six-year time frame. There are documented exceptions to the six-year rule, but the guidance is not clear and would surely be evaluated by the IRS based on the specific facts and circumstances surrounding the property transfer.

Our litigation support professionals help family law attorneys form solid financial strategies for their divorcing clients. Contact us   online  or call 800.899.4623 for help.

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Published on February 13, 2019

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  • PERSONAL FINANCIAL PLANNING

Dividing up assets when a marriage ends: Tax implications

  • Personal Financial Planning
  • Tax Planning

Editor: Theodore J. Sarenski, CPA/PFS

An often-cited belief is that 50% of marriages now end in divorce. Regardless of whether this statistic is accurate (for first marriages,  the divorce rate more likely peaked at around 40%  in the United States around 1980 and declined to about 30% by the early 21st century), most CPAs have observed the impact that divorce can have in the lives of friends and clients (or in their own lives). A tax practitioner can greatly help people in divorce by reducing the overall stress of the divorce process and providing the clarity they need to make good financial decisions for their future.

When dividing assets in divorce, the tax considerations can be straightforward in simple situations but can become complex very quickly when the assets are larger and more diverse. This column focuses on the tax implications of dividing marital property.

Beginning with the basics, Sec. 1041 provides that no gain or loss is recognized on the transfer of property between spouses. This Code section, which was introduced in the Deficit Reduction Act of 1984, P.L. 98-369, changed the treatment of transfers between spouses, which previously were treated like sales (referred to as the  Davis  rule, after  Davis , 370 U.S. 65 (1962)).

Transfers that qualify under Sec. 1041 do not have to recognize gain or loss for income tax purposes, and the transferee spouse receives carryover basis like a gift. Sec. 1041’s nonrecognition rule applies to transfers between married partners who are not contemplating divorce and, in addition, extends to transfers that are incident to divorce. “Incident to divorce” is defined in Sec. 1041(c) as a transfer that occurs within one year after the date on which the marriage ceases or that is related to the cessation of the marriage. Temp. Regs. Sec. 1.1041-1T further defines the term “related to cessation of the marriage” to be a transfer pursuant to a divorce or separation instrument, if the transfer occurs within six years after the date on which the marriage ceases. (Caution: Sec. 1041’s nonrecognition rule does not apply to transfers made to nonresident alien spouses or to transfers in trust where liability exceeds basis — Secs. 1041(d) and (e)).

Considering Sec. 1041’s nonrecognition rule as well as the unlimited marital deduction for federal estate and gift tax purposes allowed under Sec. 2523 for gifts of cash and property to a spouse, most property transfers in divorce will likely be nontaxable transfers.

With the presumption that any transfer within six years from the date of divorce (assuming it is under a divorce or separation instrument) is treated as nontaxable under Sec. 1041, it is prudent to be mindful of any transaction during this six-year time frame. In IRS Letter Ruling 8833018, this became evident when the husband was awarded a right of first refusal to acquire the family home that was awarded to the wife. This right of first refusal was exercised within the six-year time frame, and the husband “purchased” the home from his former spouse. The IRS indicated that it was not a purchase and sale but a nontaxable transfer under Sec. 1041. This resulted in the wife’s receiving nontaxable cash from the “sale” of the home and the husband’s receiving the home with the wife’s basis — likely not the result he was hoping for.

Being able to qualify for nonrecognition of income under Sec. 1041 at the time of a divorce makes the division of assets much easier but leads to certain longer-term tax consequences. Since the assets have carryover basis, the potential tax liability has only been deferred. Looking at the potential tax liability of all the assets that are being divided from the marital community can help to make the asset division more equitable as well as eliminate potential surprises for the parties later.

Since any asset received will have carryover basis, it is important to obtain the basis information as soon as possible. Temp. Regs. Sec. 1.1041-1T indicates that the transferor of property under Sec. 1041 must provide the transferee with sufficient records to determine the cost basis, holding period, and other tax information relating to the property at the time of the transfer. An adviser should recommend that a transferee spouse try to obtain this before the divorce is finalized, as attempting to obtain it later may prove to be more difficult. If this is not possible, an adviser should recommend to the transferee spouse to consider including this requirement in the final documents to allow for enforcement, if necessary, as the regulations provide no penalty for noncompliance. By having the cost basis prior to the final dissolution, advisers will be able to estimate any potential tax liability of the asset clients are receiving as well as have the information for reporting any future sale.

Planning for the principal residence

The principal residence is a typical asset that is discussed and awarded during a divorce. Sec. 121 allows joint filers to exclude up to $500,000 of gain on the sale of a residence, and individual filers can exclude up to $250,000 of gain. This can provide a tax planning opportunity for some divorcing couples. For joint filers to qualify for the exclusion, one party needs to have owned the residence, and both parties need to have used the residence as their principal residence for a total of two out of the last five years.

Sec. 121 provides very favorable treatment for parties in divorce to assist them in meeting the ownership and use tests. First, to help meet the ownership test, Sec. 121(d)(3)(A) allows the residence transfer from one spouse to the other spouse to include the holding period. This would allow the receiving spouse to count any ownership time of the transferor spouse as the receiving spouse’s own. Sec. 121(d) (3)(B) helps the parties meet the use test by allowing an individual to be treated as using property during any period of ownership while their spouse or former spouse is granted use of the property under a divorce or separation instrument. So, if one party is given temporary use of the home in a divorce instrument, the other party can count that use time as their own. Note that voluntarily moving out will not count, as it needs to be part of the agreement. In summary, Sec. 121 provides many opportunities to minimize tax on a personal residence for divorcing couples, and this can extend to planning for couples with multiple residences.

Dividing retirement plans

Retirement plans come in many forms and are also a common asset to be discussed and divided in a divorce. “Qualified” plans include pension and profit-sharing plans, such as defined benefit plans, Sec. 401(k) plans, and Sec. 403(b) plans. These employer-provided plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), P.L. 93-406, as amended, which provides that these types of plans cannot be assigned from one spouse to the other without a qualified domestic relations order (QDRO). The requirements of a QDRO are listed in Sec. 414(p), and failure to follow them can have adverse tax consequences. Once the divorce court produces the order to assign some or all of the retirement account to the spouse (alternate payee), and the qualified plan administrator has determined it meets the conditions of Sec. 414(p) and signs the document, you have a QDRO. The retirement account will now be divided between the parties as provided in the QDRO.

An individual retirement account (IRA) is not covered under ERISA and does not need a QDRO to divide. This is also true for Roth IRAs, rollover IRAs, and nonqualified retirement and deferred compensation plans, as well as a few others. These accounts can be divided by including the instruction in the settlement agreement. These instructions constitute a domestic relations order (not a “qualified” domestic relations order) in the same way that property divisions, alimony, and other instructions are recorded in an agreement.

One planning note is that a retirement account being divided via a QDRO has an opportunity to distribute funds out of the plan without having to pay the 10% early-distribution penalty. The distribution will be taxable as ordinary income but without the penalty. This can be a good way to generate some liquidity in a dissolution with limited other assets. This distribution must be part of the QDRO instructions and is not available for IRAs, as they are not divided with a QDRO.

Other assets and activities

Higher-net-worth divorcing couples may have other assets, including businesses, rental real estate, and additional personal assets that can be divided. Each of these assets should be reviewed for tax issues and opportunities. When dividing passive activities, advisers should also consider how the income or loss from the asset will be treated for tax purposes in the future. While the couple are still married, Sec. 469(h)(5) provides that the participation of one spouse in a passive activity will allow both spouses to be treated as participating. After the divorce, each spouse will need to meet the material-participation test on their own for any activity they own. A couple and their advisers would want to avoid turning a formerly nonpassive activity into a passive activity by virtue of transferring it to a spouse who does not meet the materialparticipation rules.

It is not uncommon for a passive real estate activity to have suspended losses that were not allowed in prior years. Typically, a disposition of a passive activity in a fully taxable transaction allows the deduction of these suspended losses (Sec. 469(g)(1)). However, in divorce, a distribution under Sec. 1041 is treated as a gift and not a disposition of the activity. As such, the suspended losses are added to the basis and are not allowed as a future deduction. (Community property states would add 50% to the basis, as only 50% was a gift.)

Toward an equitable division

Since different assets have different tax treatments, it is unlikely that a complex divorce can ever result in assets being divided perfectly “equally.” This is especially true as the parties will typically have certain assets that they prefer to keep, regardless of the tax treatment. A good practice is to group assets into similar “buckets” and then try to equally divide the buckets — retirement accounts in one bucket, passive activities in another, cash and investments in yet another, and so on. Then, dividing these buckets as equally as possible can help to get closer to an equitable distribution.

Also, it should be kept in mind that the goal in dividing the assets is to provide each party with the best opportunity for financial success in the future. Advisers working with one party in the divorce will want to factor in their personal goals and compare them with the cash flow that they would be receiving from the assets awarded to them in the divorce. Since living on divided assets will be different from living on the shared assets as the couple did in the past, they will likely need to make some adjustments to their personal lifestyle. Preparing a cash flow projection that includes the tax planning from the asset division can provide them with the confidence to make financial decisions about their future, and it will help them get started on their new personal and financial lives.

Contributors

David Stolz , CPA/PFS, CDFA, CFP, is with Stolz & Associates in Tacoma, Wash., and the author of  Women, Divorce and Money: Taking Control of Your Finances and Your Future .  Theodore J. Sarenski , CPA/PFS, CFP, is a wealth manager at Capital One/ United Income in Syracuse, N.Y. Mr. Sarenski is chairman of the AICPA Advanced Personal Financial Planning Conference. He is also a past chairman of the AICPA Personal Financial Planning Executive Committee and a former member of the Tax Literacy Commission. For more information about this column, contact  [email protected] .

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transfer of property divorce

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Publication 504 - Introductory Material

For the latest information about developments related to Pub. 504, such as legislation enacted after this publication was published, go to IRS.gov/Pub504 .

Change of withholding. The Form W-4 no longer uses personal allowances to calculate your income tax withholding. If you have been claiming a personal allowance for your spouse, and you divorce or legally separate, you must give your employer a new Form W-4, Employee’s Withholding Certificate, within 10 days after the divorce or separation. For more information on withholding and when you must furnish a new Form W-4, see Pub. 505.

Relief from joint liability. In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint tax return. For more information, see Relief from joint liability under Married Filing Jointly .

Social security numbers for dependents. You must include on your tax return the taxpayer identification number (generally, the social security number (SSN)) of every dependent you claim. See Dependents , later.

Using and getting an Individual Taxpayer Identification Number. The Individual Taxpayer Identification Number (ITIN) is entered wherever an SSN is requested on a tax return. If you’re required to include another person's SSN on your return and that person doesn’t have and can’t get an SSN, enter that person's ITIN. The IRS will issue an ITIN to a nonresident or resident alien who doesn’t have and isn’t eligible to get an SSN. To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. Allow 7 weeks for the IRS to notify you of your ITIN application status (9 to 11 weeks if you submit the application during peak processing periods (January 15 through April 30) or if you’re filing from overseas). If you haven't received your ITIN at the end of that time, you can call the IRS to check the status of your application. For more information, go to IRS.gov/FormW7 .

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Introduction

This publication explains tax rules that apply if you are divorced or separated from your spouse. It covers general filing information and can help you choose your filing status. It can also help you decide which benefits you are entitled to claim.

The publication also discusses payments and transfers of property that often occur as a result of divorce and how you must treat them on your tax return. Examples include alimony, child support, other court-ordered payments, property settlements, and transfers of individual retirement arrangements. In addition, this publication also explains deductions allowed for some of the costs of obtaining a divorce and how to handle tax withholding and estimated tax payments.

The last part of the publication explains special rules that may apply to persons who live in community property states.

We welcome your comments about this publication and suggestions for future editions.

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544 Sales and Other Dispositions of Assets

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Publication 504 - Main Contents

Filing status.

Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. It may also be used in determining whether you can claim certain other deductions and credits. The filing status you can choose depends partly on your marital status on the last day of your tax year.

If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying surviving spouse. If you are married, your filing status is either married filing a joint return or married filing a separate return. For information about the single and qualifying surviving spouse filing statuses, see Pub. 501.

You are unmarried for the whole year if either of the following applies.

You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. You must follow your state law to determine if you are divorced or legally separated.

Exception. If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals.

You have obtained a decree of annulment, which holds that no valid marriage ever existed. You must file amended returns (Form 1040-X, Amended U.S. Individual Income Tax Return) for all tax years affected by the annulment that aren’t closed by the statute of limitations. The statute of limitations generally doesn’t end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. On the amended return, you will change your filing status to single or, if you meet certain requirements, head of household.

You are married for the whole year if you are separated but you haven’t obtained a final decree of divorce or separate maintenance by the last day of your tax year. An interlocutory decree isn’t a final decree. However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn’t called a marriage under state (or foreign) law aren’t married for federal tax purposes. For more information, see Pub. 501.

If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. See Head of Household , later.

If you purchase health insurance coverage through the Health Insurance Marketplace, you may get advance payments of the premium tax credit in 2023. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change, and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.

If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. The Instructions for Form 8962, Premium Tax Credit (PTC), has more information about the Shared Policy Allocation.

Married Filing Jointly

If you are married, you and your spouse can choose to file a joint return. If you file jointly, you both must include all your income, deductions, and credits on that return. You can file a joint return even if one of you had no income or deductions.

To file a joint return, at least one of you must be a U.S. citizen or resident alien at the end of the tax year. If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. This means that your combined worldwide incomes are subject to U.S. income tax. These rules are explained in Pub. 519.

Both you and your spouse must generally sign the return, or it won't be considered a joint return.

Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse.

If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.

In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. You can ask for relief no matter how small the liability.

There are three types of relief available.

Innocent spouse relief.

Separation of liability (available only to joint filers whose spouse has died, or who are divorced, who are legally separated, or who haven’t lived together for the 12 months ending on the date the election for this relief is filed).

Equitable relief.

Married persons who live in community property states, but who didn’t file joint returns, may also qualify for relief from liability for tax attributable to an item of community income or for equitable relief. See Relief from liability for tax attributable to an item of community income , later, under Community Property .

Each kind of relief has different requirements. You must file Form 8857 to request relief under any of these categories. Pub. 971 explains these kinds of relief and who may qualify for them. You can also find information on our website at IRS.gov.

The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. You can get a refund of your share of the overpayment if you qualify as an injured spouse.

You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. An injured spouse can get a refund for their share of the overpayment that would otherwise be used to pay the past-due amount.

To be considered an injured spouse, you must:

Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return; and

Not be legally obligated to pay the past-due amount.

If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). For more information, see Pub. 555.

If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. Follow the instructions for the form.

If you haven’t filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically.

If you filed your joint return and your joint refund was offset, file Form 8379 by itself. When filed after offset, it can take up to 8 weeks to receive your refund. Don’t attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld.

Married Filing Separately

If you and your spouse file separate returns, you should each report only your own income, deductions, and credits on your individual return. You can file a separate return even if only one of you had income.

If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. For more information, see Community Income under Community Property , later.

If you and your spouse file separately, you each are responsible only for the tax due on your own return.

If you and your spouse file separate returns and one of you itemizes deductions, the other spouse can’t use the standard deduction and should also itemize deductions.

Table 1. Itemized Deductions on Separate Returns

You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. See Table 1 .

Some married couples file separate returns because each wants to be responsible only for their own tax. There is no joint liability. But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. This is because the following special rules apply if you file a separate return.

Your tax rate is generally higher than it would be on a joint return.

Your exemption amount for figuring the alternative minimum tax is half of that allowed on a joint return.

You can’t take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. See Pub. 503 for more information.

You can’t take the earned income credit unless you have a qualifying child.

You can’t take the exclusion or credit for adoption expenses in most cases.

You can’t exclude the interest from qualified savings bonds that you used for higher education expenses.

If you lived with your spouse at any time during the tax year:

You can’t claim the credit for the elderly or the disabled, and

You will have to include in income a higher percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.

The following credits and deductions are reduced at income levels that are half those for a joint return.

The child tax credit.

The retirement savings contributions credit.

Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).

If your spouse itemizes deductions, you can’t claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

You can’t take the credit for higher education expenses (American opportunity and lifetime learning credits) or the deduction for student loan interest.

If either you or your spouse (or both of you) file a separate return, you can generally change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. Use Form 1040-X to change your filing status.

After the due date of your return, you and your spouse can’t file separate returns if you previously filed a joint return.

A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. The personal representative has 1 year from the due date (including extensions) of the joint return to make the change.

Head of Household

Filing as head of household has the following advantages.

You can claim the standard deduction even if your spouse files a separate return and itemizes deductions.

Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately.

Your tax rate will usually be lower than it is if you claim a filing status of single or married filing separately.

You may be able to claim certain credits (such as the dependent care credit) you can’t claim if your filing status is married filing separately.

Income limits that reduce your child tax credit and your retirement savings contributions credit, for example, are higher than the income limits if you claim a filing status of married filing separately.

You may be able to file as head of household if you meet all of the following requirements.

You are unmarried or “considered unmarried” on the last day of the year.

You paid more than half the cost of keeping up a home for the year.

A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the “qualifying person” is your dependent parent, they don’t have to live with you. See Special rule for parent , later, under Qualifying person .

You are considered unmarried on the last day of the tax year if you meet all of the following tests.

You file a separate return. A separate return includes a return claiming married filing separately, single, or head of household filing status.

You paid more than half the cost of keeping up your home for the tax year.

Your spouse didn’t live in your home during the last 6 months of the tax year. Your spouse is considered to live in your home even if your spouse is temporarily absent due to special circumstances. See Temporary absences , later.

Your home was the main home of your child, stepchild, or foster child for more than half the year. (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year.)

You must be able to claim the child as a dependent. However, you meet this test if you can’t claim the child as a dependent only because the noncustodial parent can claim the child. The general rules for claiming a dependent are shown in Table 3 .

If your spouse was a nonresident alien at any time during the tax year, and you haven’t chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. However, your spouse isn’t a qualifying person for head of household purposes. You must have another qualifying person and meet the other requirements to file as head of household.

You are keeping up a home only if you pay more than half the cost of its upkeep for the year. This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. This doesn’t include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household.

Table 2 shows who can be a qualifying person. Any person not described in Table 2 isn't a qualifying person.

Generally, the qualifying person must live with you for more than half of the year.

Table 2. Who Is a Qualifying Person Qualifying You To File as Head of Household?1

If your qualifying person is your parent, you may be eligible to file as head of household even if your parent doesn't live with you. However, you must be able to claim your parent as a dependent. Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your parent.

You are keeping up a main home for your parent if you pay more than half the cost of keeping your parent in a rest home or home for the elderly.

If the person for whom you kept up a home was born or died in 2023, you may still be able to file as head of household. If the person is your qualifying child, the child must have lived with you for more than half the part of the year the child was alive. If the person is anyone else, see Pub. 501.

You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, military service, or detention in a juvenile facility. It must be reasonable to assume that the absent person will return to the home after the temporary absence. You must continue to keep up the home during the absence.

You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. You can claim head of household filing status if all of the following statements are true.

The child is presumed by law enforcement authorities to have been kidnapped by someone who isn’t a member of your family or the child's family.

In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping.

In the year of the child’s return, the child lived with you for more than half the part of the year following the date of the child’s return.

You would have qualified for head of household filing status if the child hadn’t been kidnapped.

This treatment applies for all years until the earliest of:

The year the child is returned,

The year there is a determination that the child is dead, or

The year the child would have reached age 18.

For more information on filing as head of household, see Pub. 501.

Qualifying Child or Qualifying Relative

The term “dependent” means:

A qualifying child, or

A qualifying relative.

Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming a dependent. For detailed information, see Pub. 501.

Table 3. Overview of the Rules for Claiming a Dependent

Children of divorced or separated parents (or parents who live apart).

In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. However, the child will be treated as the qualifying child of the noncustodial parent if the rule for children of divorced or separated parents (or parents who live apart) applies.

A child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true.

The parents:

Are divorced or legally separated under a decree of divorce or separate maintenance,

Are separated under a written separation agreement, or

Lived apart at all times during the last 6 months of the year, whether or not they are or were married.

The child received over half of the support for the year from the parents.

The child is in the custody of one or both parents for more than half of the year.

Either of the following applies.

The custodial parent signs a written declaration, discussed later, that they won't claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to their return. (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , or Post-2008 divorce decree or separation agreement , later).

A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2023 states that the noncustodial parent can claim the child as a dependent, the decree or agreement wasn’t changed after 1984 to say the noncustodial parent can’t claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during the year. See Child support under pre-1985 agreement , later.

The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.

If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year.

A child is treated as living with a parent for a night if the child sleeps:

At that parent's home, whether or not the parent is present; or

In the company of the parent, when the child doesn’t sleep at a parent's home (for example, the parent and child are on vacation together).

If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income.

The night of December 31 is treated as part of the year in which it begins. For example, the night of December 31, 2023, is treated as part of 2023.

If a child is emancipated under state law, the child is treated as not living with either parent. See Examples 5 and 6 .

If a child wasn’t with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. But if it can’t be determined with which parent the child normally would have lived or if the child wouldn’t have lived with either parent that night, the child is treated as not living with either parent that night.

If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. On a school day, the child is treated as living at the primary residence registered with the school.

Example 1—child lived with one parent for a greater number of nights.

You and your child’s other parent are divorced. In 2023, your child lived with you 210 nights and with the other parent 155 nights. You are the custodial parent.

Example 2—child is away at camp.

In 2023, your child lives with each parent for alternate weeks. In the summer, the child spends 6 weeks at summer camp. During the time the child is at camp, the child is treated as living with you for 3 weeks and with the other parent, your ex-spouse, for 3 weeks because this is how long the child would have lived with each parent if the child hadn’t attended summer camp.

Example 3—child lived same number of days with each parent.

Your child lived with you 180 nights during the year and lived the same number of nights with the other parent, your ex-spouse. Your adjusted gross income is $40,000. Your ex-spouse's adjusted gross income is $25,000. You are treated as your child's custodial parent because you have the higher adjusted gross income.

Example 4—child is at parent’s home but with other parent.

Your child normally lives with you during the week and with the other parent, your ex-spouse, every other weekend. You become ill and are hospitalized. The other parent lives in your home with your child for 10 consecutive days while you are in the hospital. Your child is treated as living with you during this 10-day period because the child was living in your home.

Example 5—child emancipated in May.

When your child turned age 18 in May 2023, the child became emancipated under the law of the state where the child lives. As a result, the child isn’t considered in the custody of the parents for more than half of the year. The special rule for children of divorced or separated parents (or parents who live apart) doesn’t apply.

Example 6—child emancipated in August.

Your child lives with you from January 1, 2023, until May 31, 2023, and lives with the other parent, your ex-spouse, from June 1, 2023, through the end of the year. The child turns 18 and is emancipated under state law on August 1, 2023. Because the child is treated as not living with either parent beginning on August 1, the child is treated as living with you the greater number of nights in 2023. You are the custodial parent.

The custodial parent must use either Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a similar statement (containing the same information required by the form) to make a written declaration to release a claim to an exemption for a child to the noncustodial parent. Although the exemption amount is zero for tax year 2023, this release allows the noncustodial parent to claim the child tax credit, additional child tax credit, and credit for other dependents, if applicable, for the child. The noncustodial parent must attach a copy of the form or statement to their tax return each year the custodial parent releases their claims.

The release can be for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration.

If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. The decree or agreement must state all three of the following.

The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support.

The custodial parent won't claim the child as a dependent for the year.

The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent.

The noncustodial parent must attach all of the following pages of the decree or agreement to their tax return.

The cover page (write the other parent's SSN on this page).

The pages that include all of the information identified in items (1) through (3) above.

The signature page with the other parent's signature and the date of the agreement.

If the decree or agreement went into effect after 2008, a noncustodial parent claiming a child as a dependent can’t attach pages from a divorce decree or separation agreement instead of Form 8332. The custodial parent must sign either a Form 8332 or a similar statement. The only purpose of this statement must be to release the custodial parent's claim to an exemption. The noncustodial parent must attach a copy to their return. The form or statement must release the custodial parent's claim to the child without any conditions. For example, the release must not depend on the noncustodial parent paying support.

The custodial parent can revoke a release of claim to an exemption that they previously released to the noncustodial parent. For the revocation to be effective for 2023, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2022 or earlier. The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to their return for each tax year the custodial parent claims the child as a dependent as a result of the revocation.

If you remarry, the support provided by your new spouse is treated as provided by you.

All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child.

Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support.

This rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year.

Payments to your spouse that are includible in their gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust aren’t treated as a payment for the support of a dependent.

Qualifying Child of More Than One Person

Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually claim the child as a qualifying child to take the following tax benefits (provided the person is eligible).

The child tax credit, the credit for other dependents, and the additional child tax credit.

Head of household filing status.

The credit for child and dependent care expenses.

The exclusion from income for dependent care benefits.

The earned income credit.

In other words, you and the other person can’t agree to divide these tax benefits between you.

To determine which person can treat the child as a qualifying child to claim these tax benefits, the following tiebreaker rules apply.

If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent.

If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents.

If the parents don’t file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year.

If the parents don’t file a joint return together but both can claim the child as a qualifying child and the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year.

If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year.

If a parent can claim the child as a qualifying child but no parent claims the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. See Pub. 501 for details.

Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child.

You may be able to qualify for the earned income credit under the rules for taxpayers without a qualifying child if you have a qualifying child for the earned income credit who is claimed as a qualifying child by another taxpayer. For more information, see Pub. 596.

Example 1—separated parents.

You, your spouse, and your 10-year-old child lived together until August 1, 2023, when your spouse moved out of the household. In August and September, your child lived with you. For the rest of the year, your child lived with your spouse, the child's other parent. Your child is a qualifying child of both you and your spouse because your child lived with each of you for more than half the year and because the child met the relationship, age, support, and joint return tests for both of you. At the end of the year, you and your spouse still weren't divorced, legally separated, or separated under a written separation agreement, so the rule for children of divorced or separated parents (or parents who live apart) doesn't apply.

You and your spouse will file separate returns. Your spouse agrees to let you treat your child as a qualifying child. This means, if your spouse doesn’t claim your child as a qualifying child, you can claim your child as a dependent and treat your child as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. However, you can’t claim head of household filing status because you and your spouse didn’t live apart the last 6 months of the year. And, as a result of your filing status being married filing separately, you can’t claim the credit for child and dependent care expenses.

Example 2—separated parents claim same child.

The facts are the same as in Example 1 except that you and your spouse both claim your child as a qualifying child. In this case, only your spouse will be allowed to treat your child as a qualifying child. This is because, during 2023, the child lived with the other parent longer than with you. If you claimed the child tax credit for your child, the IRS will disallow your claim to the child tax credit. If you don’t have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. In addition, because you and your spouse didn’t live apart the last 6 months of the year, your spouse can’t claim head of household filing status. And, as a result of the other spouse’s filing status being married filing separately, the other spouse can’t claim the credit for child and dependent care expenses.

If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim the child tax credit or the credit for other dependents for the child. However, the custodial parent, if eligible, or other eligible person can claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. If the child is a qualifying child of more than one person for these benefits, then the tiebreaker rules determine whether the custodial parent or another eligible person can treat the child as a qualifying child.

You and your 5-year-old child lived all year with your parent, who paid the entire cost of keeping up the home. Your AGI is $10,000. Your parent's AGI is $25,000. Your child’s other parent doesn’t live with you or your child.

Under the rules for children of divorced or separated parents (or parents who live apart), your child is treated as the qualifying child of the other parent, who can claim the child tax credit for the child if the other parent meets all the requirements to do so. Because of this, you can't claim the child tax credit for your child. However, your child’s other parent can’t claim your child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit.

You and your parent didn’t have any childcare expenses or dependent care benefits, but the child is a qualifying child of both you and your parent for head of household filing status and the earned income credit because the child meets the relationship, age, residency, support, and joint return tests for both you and your parent. ( Note: The support test doesn’t apply for the earned income credit.) However, you agree to let your parent claim your child. This means your parent can claim the child for head of household filing status and the earned income credit if your parent qualifies for each and if you don’t claim the child as a qualifying child for the earned income credit. (You can’t claim head of household filing status because your parent paid the entire cost of keeping up the home.)

The facts are the same as in Example 1 except that your AGI is $25,000 and your parent's AGI is $21,000. Your parent can’t claim your child as a qualifying child for any purpose because your parent’s AGI isn't higher than yours.

The facts are the same as in Example 1 except that you and your parent both claim your child as a qualifying child for the earned income credit. Your parent also claims your child as a qualifying child for head of household filing status. You, as the child's parent, will be the only one allowed to claim your child as a qualifying child for the earned income credit. The IRS will disallow your parent's claim to the earned income credit and head of household filing status unless your parent has another qualifying child.

Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. It doesn’t include voluntary payments that aren’t made under a divorce or separation instrument.

Although this discussion is generally written for the payer of the alimony, the recipient can also use the information to determine whether an amount received is alimony.

To be alimony, a payment must meet certain requirements. There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. General alimony requirements and specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. See Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments.

Unless otherwise stated, the term “spouse” includes former spouse.

The term “divorce or separation instrument” means:

A decree of divorce or separate maintenance or a written instrument incident to that decree;

A written separation agreement; or

A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement).

Payments under a divorce decree can be alimony even if the decree's validity is in question. A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid.

An amendment to a divorce decree may change the nature of your payments. Amendments aren’t ordinarily retroactive for federal tax purposes. However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes.

A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. This change is also effective retroactively for federal tax purposes.

Your original divorce decree didn't fix any part of the payment as child support. To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. The amended order is effective retroactively for federal tax purposes.

Alimony is deductible by the payer, and the recipient must include it in income if you entered into a divorce or separation agreement on or before December 31, 2018. Alimony paid is not deductible if you entered into a divorce or separation agreement on or before December 31, 2018, and the agreement is changed after December 31, 2018, to expressly provide that alimony received is not inluded in your former spouse’s income. Alimony paid is not deductible if you entered into a divorce or separation agreement after December 31, 2018.

You must use Form 1040 or 1040-SR to deduct alimony you paid. You can’t use Form 1040-NR.

Enter the amount of alimony you paid on Schedule 1 (Form 1040), line 19a. In the space provided on line 19b, enter your recipient’s SSN or ITIN.

If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Enter your total payments on line 19a.

If your alimony is included in your income, and you file Form 1040 or 1040-SR, report alimony you received on Schedule 1 (Form 1040), line 2a. If you file Form 1040-NR, report alimony you received on Schedule NEC (Form 1040-NR).

If you are a U.S. citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. However, many tax treaties provide for an exemption from withholding for alimony payments. For more information, see Pub. 515.

Alimony Payment Rules for Instruments Executed Prior to 2019

If you entered into a divorce or separation agreement on or before December 31, 2018, and the agreement has not been changed after December 31, 2018, to expressly provide that alimony received is not included in your former spouse’s income, the following rules apply.

Not all payments under a divorce or separation instrument are alimony. Alimony doesn’t include:

Child support,

Noncash property settlements,

Payments that are your spouse's part of community income, as explained later under Community Property ,

Payments to keep up the payer's property, or

Use of the payer's property.

Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs aren’t alimony. Neither is the value of your spouse's use of the home.

If utility payments otherwise qualify as alimony, you may be able to deduct these payments as alimony. Your spouse must report them as income. If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. However, if your spouse owned the home, see Example 2 under Payments to a third party , later. If you owned the home jointly with your spouse, see Table 4 . For more information, see Pub. 936.

To determine whether a payment is child support, see the discussion under Certain Rules for Instruments Executed After 1984 , later. If your divorce or separation agreement was executed before 1985, see the 2004 revision of Pub. 504, available at IRS.gov/FormsPubs .

If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony.

Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received for a divorce decree executed prior to 2019. If you pay only $3,600 during the year, $2,400 is child support. You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received instead of $1,800. This is because the payments apply first to child support and then to alimony.

Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc.), taxes, tuition, etc. The payments are treated as received by your spouse and then paid to the third party.

Under your 2018 divorce decree, you must pay your former spouse's medical and dental expenses. If the payments otherwise qualify, you can deduct them as alimony on your return. Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses.

Under your 2018 separation agreement, you must pay the real estate taxes and mortgage payments on a home owned by your spouse. If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. Your spouse may be able to deduct the real estate taxes and home mortgage interest, subject to the limitations on those deductions. See the Instructions for Schedule A (Form 1040). However, if you owned the home, see the example under Payments not alimony , earlier. If you owned the home jointly with your spouse, see Table 4 .

Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy.

If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. See Table 4 .

However, if your spouse owned the home, see Example 2 under Payments to a third party , earlier. If you owned the home, see the example under Payments not alimony , earlier.

Table 4. Expenses for a Jointly Owned Home

Certain rules for instruments executed after 1984 but before 2019.

The following rules for alimony apply to payments under divorce or separation instruments executed after 1984 but before 2019.

Alimony Requirements

A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses don’t file a joint return with each other and all of the following requirements are met.

The payment is in cash.

The instrument doesn’t designate the payment as not alimony.

The spouses aren’t members of the same household at the time the payments are made. This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance.

There is no liability to make any payment (in cash or property) after the death of the recipient spouse.

The payment isn’t treated as child support.

Only cash payments, including checks and money orders, qualify as alimony. The following don’t qualify as alimony.

Transfers of services or property (including a debt instrument of a third party or an annuity contract).

Execution of a debt instrument by the payer.

The use of the payer's property.

Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. See Payments to a third party under General Rules , earlier.

Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met.

The payments are in lieu of payments of alimony directly to your spouse.

The written request states that both spouses intend the payments to be treated as alimony.

You receive the written request from your spouse before you file your return for the year you made the payments.

You and your spouse can designate that otherwise qualifying payments aren't alimony. You do this by including a provision in your divorce or separation instrument that states the payments aren't deductible as alimony by you and are excludable from your spouse's income. For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order.

Your spouse can exclude the payments from income only if they attach a copy of the instrument designating them as not alimony to their return. The copy must be attached each year the designation applies.

Payments to your spouse while you are members of the same household aren't alimony if you are legally separated under a decree of divorce or separate maintenance. A home you formerly shared is considered one household, even if you physically separate yourselves in the home.

You aren’t treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment.

If you aren’t legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made.

If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments isn’t alimony whether made before or after the death. If all of the payments would continue, then none of the payments made before or after the death are alimony.

The divorce or separation instrument doesn’t have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law.

You must pay your former spouse $10,000 in cash each year for 10 years. Your divorce decree states that the payments will end upon your former spouse's death. You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. The death of your spouse wouldn’t end these payments under state law.

The $10,000 annual payments may qualify as alimony. The $20,000 annual payments that don’t end upon your former spouse's death aren’t alimony.

If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments aren’t alimony. To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that weren’t alimony. Whether or not such payments will be treated as not alimony depends on all the facts and circumstances.

Under your divorce decree, you must pay your former spouse $30,000 annually. The payments will stop at the end of 6 years or upon your former spouse's death, if earlier.

Your former spouse has custody of your minor children. The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. The trust income and corpus (principal) are to be used for your children's benefit.

These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. Of each of the $30,000 annual payments, $10,000 isn't alimony.

Under your divorce decree, you must pay your former spouse $30,000 annually. The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. For example, if your spouse dies at the end of the 10th year, you must pay the estate $150,000 ($450,000 − $300,000).

These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. None of the annual payments are alimony. The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment.

A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument isn’t alimony. The amount of child support may vary over time. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.

A payment will be treated as specifically designated as child support to the extent that the payment is reduced either:

On the happening of a contingency relating to your child, or

At a time that can be clearly associated with the contingency.

A contingency relates to your child if it depends on any event relating to that child. It doesn’t matter whether the event is certain or likely to occur. Events relating to your child include the child's:

Becoming employed,

Leaving the household,

Leaving school,

Marrying, or

Reaching a specified age or income level.

Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations.

The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority.

The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. This certain age must be the same for each child, but need not be a whole number of years.

Either you or the IRS can overcome the presumption in the two situations above. This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony.

Recapture of Alimony

If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. If you are subject to this rule, you have to include in income (in the third year) part of the alimony payments you previously deducted. Your spouse can deduct (in the third year) part of the alimony payments they previously included in income.

The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. Don’t include any time in which payments were being made under temporary support orders. The second and third years are the next 2 calendar years, whether or not payments are made during those years.

The reasons for a reduction or end of alimony payments that can require a recapture include:

A change in your divorce or separation instrument,

A failure to make timely payments,

A reduction in your ability to provide support, or

A reduction in your spouse's support needs.

You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year.

When you figure a decrease in alimony, don’t include the following amounts.

Payments made under a temporary support order.

Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment.

Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year.

Both you and your spouse can use Worksheet 1 to figure recaptured alimony.

If you must include a recapture amount in income, show it on Schedule 1 (Form 1040), line 2a (“Alimony received”). Cross out “received” and enter “recapture.” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN.

If you can deduct a recapture amount, show it on Schedule 1 (Form 1040), line 19a (“Alimony paid”). Cross out “paid” and enter “recapture.” In the space provided, enter your spouse's SSN or ITIN.

You pay your former spouse $50,000 alimony the first year, $39,000 the second year, and $28,000 the third year. In the third year, you report $1,500 as income on Schedule 1 (Form 1040), line 2a, and your former spouse reports $1,500 as a deduction on Schedule 1 (Form 1040), line 19a.

Worksheet 1. Recapture of Alimony

Information on pre-1985 instruments was included in this publication through 2004. If you need the 2004 revision, please visit IRS.gov/FormsPubs .

Amounts paid as alimony or separate maintenance payments under a divorce or separation instrument executed after 2018 won’t be deductible by the payer. Such amounts also won’t be includible in the income of the recipient. The same is true of alimony paid under a divorce or separation instrument executed before 2019 and modified after 2018, if the modification expressly states that the alimony isn’t deductible to the payer or includible in the income of the recipient. The examples below illustrate the tax treatment of alimony payments under the post-2018 alimony rules. In each of the examples, assume the payments qualify as alimony under the Internal Revenue Code of 1986.

On December 2, 2015, a court executed a divorce decree providing for monthly alimony payments beginning January 1, 2016, for a period of 9 years. On May 16, 2023, the court modified the divorce decree to increase the amount of monthly alimony payments. The first increased alimony payment was due on June 1, 2023. The modification didn't expressly provide that the post-2018 alimony rules apply to alimony payments made after the date of the modification. Therefore, all alimony payments made in 2023 are includible in the recipient’s income and deductible from the payer’s income.

Assume the same facts as in Example 1 above except the modification expressly provided that the post-2018 alimony rules apply. The alimony payments made in January 2023 through May 2023 are includible in the recipient’s income and deductible from the payer’s income. The alimony payments made in June 2023 through December 2023 are neither includible in the recipient’s income nor deductible from the payer’s income.

On December 2, 2015, a couple executed a written separation agreement providing for monthly alimony payments on the first day of each month, beginning January 1, 2016, for a period of 9 years. The written separation agreement set forth that it expires upon the execution of a divorce decree dissolving the couple’s marriage. On May 27, 2023, a court executed the divorce decree awarding alimony under the same terms as described in the couple’s separation agreement. The alimony payments made in January 2023 through May 2023 under the written separation agreement are includible in the recipient’s income and deductible from the payer’s income. The court executed the divorce decree after December 31, 2018; therefore, alimony payments made in June 2023 through December 2023 under the divorce decree are neither includible in the recipient’s income nor deductible from the payer’s income.

On October 1, 2018, a couple executed a written separation agreement subject to the laws of State X. The written separation agreement requires a $1,000 monthly alimony payment on the last business day of a month for a period of 3 years. Under the laws of State X, at the time of divorce, a written separation agreement may survive as an independent contract. In the process of obtaining their divorce, the couple decided their separation agreement will remain an independent contract and won't be incorporated or merged into their divorce decree. The court, after acknowledging the separation agreement as fair and equitable, executed a divorce decree on April 1, 2023, dissolving the couple’s marriage. The divorce decree did not mention alimony. All alimony payments made in 2023 are includible in the recipient’s income and deductible from the payer’s income because the alimony payments were made under the written separation agreement that was executed on or before December 31, 2018.

Qualified Domestic Relations Order

A qualified domestic relations order (QDRO) is a judgment, decree, or court order (including an approved property settlement agreement) issued under a state's domestic relations law that:

Recognizes someone other than a participant as having a right to receive benefits from a qualified retirement plan (such as most pension and profit-sharing plans) or a tax-sheltered annuity;

Relates to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of the participant; and

Specifies certain information, including the amount or part of the participant's benefits to be paid to the participant's spouse, former spouse, child, or other dependent.

Benefits paid under a QDRO to the plan participant's child or other dependent are treated as paid to the participant. For information about the tax treatment of benefits from retirement plans, see Pub. 575.

Benefits paid under a QDRO to the plan participant's spouse or former spouse must generally be included in the spouse's or former spouse's income. If the participant contributed to the retirement plan, a prorated share of the participant's cost (investment in the contract) is used to figure the taxable amount.

The spouse or former spouse can use the special rules for lump-sum distributions if the benefits would have been treated as a lump-sum distribution had the participant received them. For this purpose, consider only the balance to the spouse's or former spouse's credit in determining whether the distribution is a total distribution. See Lump-Sum Distributions in Pub. 575 for information about the special rules.

If you receive an eligible rollover distribution under a QDRO as the plan participant's spouse or former spouse, you may be able to roll it over tax free into a traditional individual retirement arrangement (IRA) or another qualified retirement plan.

For more information on the tax treatment of eligible rollover distributions, see Pub. 575.

Individual Retirement Arrangements

The following discussions explain some of the effects of divorce or separation on traditional individual retirement arrangements (IRAs). Traditional IRAs are IRAs other than Roth or SIMPLE IRAs.

If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse's traditional IRA. You can deduct only contributions to your own traditional IRA.

The transfer of all or part of your interest in a traditional IRA to your spouse or former spouse, under a decree of divorce or separate maintenance or a written instrument incident to the decree, isn’t considered a taxable transfer. Starting from the date of the transfer, the traditional IRA interest transferred is treated as your spouse's or former spouse's traditional IRA.

All taxable alimony you receive under a decree of divorce or separate maintenance is treated as compensation for the contribution and deduction limits for traditional IRAs.

For more information about IRAs, including Roth IRAs, see Pub. 590-A and Pub. 590-B.

Property Settlements

Generally, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. You may, however, have to report the transaction on a gift tax return. See Gift Tax on Property Settlements , later. If you sell property that you own jointly to split the proceeds as part of your property settlement, see Sale of Jointly Owned Property , later.

Transfer Between Spouses

Generally, no gain or loss is recognized on a transfer of property from you to (or in trust for the benefit of):

Your spouse, or

Your former spouse, but only if the transfer is incident to your divorce.

This rule doesn’t apply in the following situations.

Your spouse or former spouse is a nonresident alien.

Certain transfers in trust , discussed later.

Certain stock redemptions under a divorce or separation instrument or a valid written agreement that are taxable under applicable tax law, as discussed in Regulations section 1.1041-2.

The term “property” includes all property whether real or personal, tangible or intangible, or separate or community. It includes property acquired after the end of your marriage and transferred to your former spouse. It doesn’t include services.

If you transfer your interest in an HSA to your spouse or former spouse under a divorce or separation instrument, it isn’t considered a taxable transfer. After the transfer, the interest is treated as your spouse's HSA.

If you transfer your interest in an Archer MSA to your spouse or former spouse under a divorce or separation instrument, it isn’t considered a taxable transfer. After the transfer, the interest is treated as your spouse's Archer MSA.

The treatment of the transfer of an interest in an IRA as a result of divorce is similar to that just described for the transfer of an interest in an HSA and an Archer MSA. See IRA transferred as a result of divorce , earlier, under Individual Retirement Arrangements .

A property transfer is incident to your divorce if the transfer:

Occurs within 1 year after the date your marriage ends, or

Is related to the end of your marriage.

A property transfer is related to the end of your marriage if both of the following conditions apply.

The transfer is made under your original or modified divorce or separation instrument.

The transfer occurs within 6 years after the date your marriage ends.

Unless these conditions are met, the transfer is presumed not to be related to the end of your marriage. However, this presumption won't apply if you can show that the transfer was made to carry out the division of property owned by you and your spouse at the time your marriage ended. For example, the presumption won't apply if you can show that the transfer was made more than 6 years after the end of your marriage because of business or legal factors that prevented earlier transfer of the property and the transfer was made promptly after those factors were taken care of.

If you transfer property to a third party on behalf of your spouse (or former spouse, if incident to your divorce), the transfer is treated as two transfers.

A transfer of the property from you to your spouse or former spouse.

An immediate transfer of the property from your spouse or former spouse to the third party.

For this treatment to apply, the transfer from you to the third party must be one of the following.

Required by your divorce or separation instrument.

Requested in writing by your spouse or former spouse.

Consented to in writing by your spouse or former spouse. The consent must state that both you and your spouse or former spouse intend the transfer to be treated as a transfer from you to your spouse or former spouse subject to the rules of Internal Revenue Code section 1041. You must receive the consent before filing your tax return for the year you transfer the property.

If you make a transfer of property in trust for the benefit of your spouse (or former spouse, if incident to your divorce), you generally don’t recognize any gain or loss.

However, you must recognize gain or loss if, incident to your divorce, you transfer an installment obligation in trust for the benefit of your former spouse. For information on the disposition of an installment obligation, see Pub. 537.

You must also recognize as gain on the transfer of property in trust the amount by which the liabilities assumed by the trust, plus the liabilities to which the property is subject, exceed the total of your adjusted basis in the transferred property.

You own property with a fair market value of $12,000 and an adjusted basis of $1,000. You transfer the property in trust for the benefit of your spouse. The trust didn’t assume any liabilities. The property is subject to a $5,000 liability. Your recognized gain is $4,000 ($5,000 − $1,000).

You should report income from property transferred to your spouse or former spouse as shown in Table 5 .

For information on the treatment of interest on transferred U.S. savings bonds, see chapter 1 of Pub. 550.

Property you receive from your spouse (or former spouse, if the transfer is incident to your divorce) is treated as acquired by gift for income tax purposes. Its value isn’t taxable to you.

Your basis in property received from your spouse (or former spouse, if incident to your divorce) is the same as your spouse's adjusted basis. This applies for determining either gain or loss when you later dispose of the property. It applies whether the property's adjusted basis is less than, equal to, or greater than either its value at the time of the transfer or any consideration you paid. It also applies even if the property's liabilities are more than its adjusted basis.

This rule generally applies to all property received after July 18, 1984, under a divorce or separation instrument in effect after that date. It also applies to all other property received after 1983 for which you and your spouse (or former spouse) made a “section 1041 election” to apply this rule. For information about how to make that election, see Temporary Regulations section 1.1041-1T(g).

You and your former spouse owned your home jointly. You transferred your interest in the home to your former spouse when you divorced last year. Your former spouse’s basis in the interest they received from you is your adjusted basis in the home. Your former spouse’s total basis in the home is the joint adjusted basis.

Your basis in property received in settlement of marital support rights before July 19, 1984, or under an instrument in effect before that date (other than property for which you and your spouse (or former spouse) made a “section 1041 election”) is its fair market value when you received it.

Table 5. Property Transferred Pursuant to Divorce

You and your former spouse owned your home jointly before your divorce in 1983. That year, you received your former spouse’s interest in the home in settlement of your marital support rights. Your basis in the interest you received from your former spouse is the part of the home’s fair market value proportionate to that interest. Your total basis in the home is that part of the fair market value plus your adjusted basis in your own interest.

If the transferor recognizes gain on property transferred in trust, as described earlier under Transfers in trust , the trust's basis in the property is increased by the recognized gain.

Your spouse transfers property in trust, recognizing a $4,000 gain. Your spouse's adjusted basis in the property was $1,000. The trust's basis in the property is $5,000 ($1,000 + $4,000).

Gift Tax on Property Settlements

Generally, a transfer to a spouse who is a citizen of the United States isn’t subject to federal gift tax, because there is an unlimited deduction for transfers to a U.S. citizen spouse. However, a transfer to a former spouse isn’t generally eligible for a martial deduction, and may be subject to federal gift tax unless the transfer qualifies for one or more of the exceptions explained in this discussion. If your transfer of property doesn’t qualify for an exception, or qualifies only in part, you must report it on a gift tax return. See Gift Tax Return , later.

For more information about the federal gift tax, see Estate and Gift Taxes in Pub. 559, Form 709 and its instructions.

Your transfer of property to your spouse or former spouse isn’t subject to gift tax if it meets any of the following exceptions.

It is made in settlement of marital support rights.

It qualifies for the marital deduction.

It is made under a divorce decree.

It is made under a written agreement, and you are divorced within a specified period.

It qualifies for the annual exclusion.

It qualifies for the unlimited exclusion for direct payments of tuition or medical care.

A transfer in settlement of marital support rights isn’t subject to gift tax to the extent the value of the property transferred isn’t more than the value of those rights. This exception doesn’t apply to a transfer in settlement of dower, curtesy, or other marital property rights.

A transfer of property to your spouse before receiving a final decree of divorce or separate maintenance isn't subject to gift tax. However, this exception doesn’t apply to:

Transfers of certain terminable interests (for example, certain interests in trust), or

Transfers to your spouse if your spouse isn’t a U.S. citizen.

A transfer of property under the decree of a divorce court having the power to prescribe a property settlement isn’t subject to gift tax. This exception also applies to a property settlement agreed on before the divorce if it was made part of or approved by the decree.

A transfer of property under a written agreement in settlement of marital rights or to provide a reasonable child support allowance isn’t subject to gift tax if you are divorced within the 3-year period beginning 1 year before and ending 2 years after the date of the agreement. This exception applies whether or not the agreement is part of or approved by the divorce decree.

The first $17,000 of gifts of present interests to each person during 2023 isn’t subject to gift tax. This includes transfers to a former spouse or transfers to a current spouse that don’t qualify for the marital deduction. The annual exclusion is $175,000 for transfers to a spouse who isn’t a U.S. citizen provided the gift would otherwise qualify for the gift tax marital deduction if the donee were a U.S. citizen.

A gift is considered a present interest if the donee has unrestricted rights to the immediate use, possession, and enjoyment of the property or income from the property.

Direct payments of tuition to an educational organization or to any person or organization that provides medical care (including direct payments to a health insurer) aren’t subject to federal gift tax. Therefore, such payments made for the benefit of a spouse or former spouse won’t be subject to federal gift tax.

Gift Tax Return

Report a transfer of property subject to gift tax on Form 709. Generally, Form 709 is due April 15 following the year of the transfer.

If a property transfer would be subject to gift tax except that it is made under a written agreement, and you don’t receive a final decree of divorce by the due date for filing the gift tax return, you must report the transfer on Form 709 and attach a copy of your written agreement. The transfer will be treated as not subject to the gift tax until the final decree of divorce is granted, but no longer than 2 years after the effective date of the written agreement.

Within 60 days after you receive a final decree of divorce, send a certified copy of the decree to the IRS office where you filed Form 709.

Sale of Jointly Owned Property

If you sell property that you and your spouse own jointly, you must report your share of the recognized gain or loss on your income tax return for the year of the sale. Your share of the gain or loss is determined by your state law governing ownership of property. For information on reporting gain or loss, see Pub. 544.

If you sold your main home, you may be able to exclude up to $250,000 (up to $500,000 if you and your spouse file a joint return) of gain on the sale. For more information, including special rules that apply to separated and divorced individuals selling a main home, see Pub. 523.

Costs of Getting a Divorce

You can’t deduct legal fees and court costs for getting a divorce. In addition, you can’t deduct legal fees paid for tax advice in connection with a divorce and legal fees to get alimony or fees you pay to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony.

You can’t deduct the costs of personal advice, counseling, or legal action in a divorce. These costs aren’t deductible, even if they are paid, in part, to arrive at a financial settlement or to protect income-producing property.

You also can’t deduct legal fees you pay for a property settlement. However, you can add it to the basis of the property you receive. For example, you can add the cost of preparing and filing a deed to put title to your house in your name alone to the basis of the house.

Finally, you can’t deduct fees you pay for your spouse or former spouse, unless your payments qualify as alimony. (See Payments to a third party under Alimony , earlier.) If you have no legal responsibility arising from the divorce settlement or decree to pay your spouse's legal fees, your payments are gifts and may be subject to the gift tax.

Tax Withholding and Estimated Tax

When you become divorced or separated, you will usually have to file a new Form W-4 with your employer to claim your proper withholding. If you receive alimony, you may have to make estimated tax payments.

For more information, see Pub. 505.

If you and your spouse made joint estimated tax payments for 2023 but file separate returns, either of you can claim all of your payments, or you can divide them in any way on which you both agree. If you can’t agree, the estimated tax you can claim equals the total estimated tax paid times the tax shown on your separate return for 2023, divided by the total of the tax shown on your 2023 return and your spouse's 2023 return. You may want to attach an explanation of how you and your spouse divided the payments.

If you claim any of the payments on your tax return, enter your spouse's or former spouse's SSN in the space provided on Form 1040 or 1040-SR. If you were divorced and remarried in 2023, enter your present spouse's SSN in that space and enter your former spouse's SSN, followed by “DIV” to the left of Form 1040, line 26.

Community Property

If you are married and your domicile (permanent legal home) is in a community property state, special rules determine your income. Some of these rules are explained in the following discussions. For more information, see Pub. 555.

Community property states include:

California,

New Mexico,

Washington, and

Community Income

If your domicile is in a community property state during any part of your tax year, you may have community income. Your state law determines whether your income is separate or community income. If you and your spouse file separate returns, you must report half of any income described by state law as community income and all of your separate income, and your spouse must report the other half of any community income plus all of their separate income. Each of you can claim credit for half the income tax withheld from community income.

Community Property Laws Disregarded

The following discussions are situations where special rules apply to community property.

Community property laws may not apply to an item of community income that you received but didn’t treat as community income. You will be responsible for reporting all of it if:

You treat the item as if only you are entitled to the income, and

You don’t notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions).

You aren’t responsible for the tax on an item of community income if all five of the following conditions exist.

You didn’t file a joint return for the tax year.

You didn’t include an item of community income in gross income on your separate return.

The item of community income you didn’t include is one of the following.

Wages, salaries, and other compensation your spouse (or former spouse) received for services they performed as an employee.

Income your spouse (or former spouse) derived from a trade or business they operated as a sole proprietor.

Your spouse's (or former spouse's) distributive share of partnership income.

Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Use the appropriate community property law to determine what is separate property.

Any other income that belongs to your spouse (or former spouse) under community property law.

You establish that you didn’t know of, and had no reason to know of, that community income.

Under all facts and circumstances, it wouldn't be fair to include the item of community income in your gross income.

To be considered for equitable relief from liability for tax attributable to an item of community income, you must meet all of the following conditions.

You timely filed your claim for relief.

You and your spouse (or former spouse) didn’t transfer assets to one another as a part of a fraudulent scheme. A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner.

Your spouse (or former spouse) didn’t transfer property to you for the main purpose of avoiding tax or the payment of tax.

You didn’t knowingly participate in the filing of a fraudulent joint return.

The income tax liability from which you seek relief is attributable (either in full or in part) to an item of your spouse (or former spouse) or an unpaid tax resulting from your spouse’s (or former spouse’s) income. If the liability is partially attributable to you, then relief can only be considered for the part of the liability attributable to your spouse (or former spouse). The IRS will consider granting relief regardless of whether the understated tax, deficiency, or unpaid tax is attributable (in full or in part) to you if any of the following exceptions apply.

The item is attributable or partially attributable to you solely due to the operation of community property law. If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief.

If the item is titled in your name, the item is presumed to be attributable to you. However, you can rebut this presumption based on the facts and circumstances.

You didn’t know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for their benefit. If you meet this exception, the IRS will consider granting equitable relief although the unpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse).

You establish that you were the victim of spousal abuse or domestic violence before the return was filed, and that, as a result of the prior abuse, you didn’t challenge the treatment of any items on the return for fear of your spouse’s (or former spouse’s) retaliation. If you meet this exception, relief will be considered even though the understated tax or unpaid tax may be attributable in part or in full to your item.

The item giving rise to the understated tax or deficiency is attributable to you, but you establish that your spouse’s (or former spouse’s) fraud is the reason for the erroneous item.

For information on how and when to request relief from liabilities arising from community property laws, see Community Property Laws in Pub. 971.

In some states, spouses may enter into an agreement that affects the status of property or income as community or separate property. Check your state law to determine how it affects you.

If you are married at any time during the calendar year, special rules apply for reporting certain community income. You must meet all the following conditions for these special rules to apply.

You and your spouse lived apart all year.

You and your spouse didn’t file a joint return for a tax year beginning or ending in the calendar year.

You and/or your spouse had earned income for the calendar year that is community income.

You and your spouse haven’t transferred, directly or indirectly, any of the earned income in (3) between yourselves before the end of the year. Don’t take into account transfers satisfying child support obligations or transfers of very small amounts or value.

If all these conditions exist, you and your spouse must report your community income as explained in the following discussions. See also Certain community income not treated as community income by one spouse , earlier.

Treat earned income that isn’t trade or business or partnership income as the income of the spouse who performed the services to earn the income. Earned income is wages, salaries, professional fees, and other pay for personal services.

Earned income doesn’t include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered.

Treat income and related deductions from a trade or business that isn’t a partnership as those of the spouse carrying on the trade or business.

Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner.

Treat income from the separate property of one spouse as the income of that spouse.

Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits.

Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.

George and Sharon were married throughout the year but didn’t live together at any time during the year. Both domiciles were in a community property state. They didn’t file a joint return or transfer any of their earned income between themselves. During the year, their incomes were as follows:

Under the community property law of their state, all the income is considered community income. (Some states treat income from separate property as separate income—check your state law.) Sharon didn’t take part in George's consulting business.

Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). But because they meet the four conditions listed earlier under Spouses living apart all year , they must disregard community property law in reporting all their income (except the interest income) from community property. They each report on their returns only their own earnings and other income, and their share of the interest income from community property. George reports $26,500 and Sharon reports $34,500.

If you and your spouse are separated but don’t meet the four conditions discussed earlier under Spouses living apart all year , you must treat your income according to the laws of your state. In some states, income earned after separation but before a decree of divorce continues to be community income. In other states, it is separate income.

When the marital community ends as a result of divorce or separation, the community assets (money and property) are divided between the spouses. Each spouse is taxed on half the community income for the part of the year before the community ends. However, see Spouses living apart all year , earlier. Income received after the community ended is separate income, taxable only to the spouse to whom it belongs.

An absolute decree of divorce or annulment ends the marital community in all community property states. A decree of annulment, even though it holds that no valid marriage ever existed, usually doesn’t nullify community property rights arising during the “marriage.” However, you should check your state law for exceptions.

A decree of legal separation or of separate maintenance may or may not end the marital community. The court issuing the decree may terminate the marital community and divide the property between the spouses.

A separation agreement may divide the community property between you and your spouse. It may provide that this property, along with future earnings and property acquired, will be separate property. This agreement may end the community.

In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Check your state law.

Payments that may otherwise qualify as alimony aren’t deductible by the payer if they are the recipient spouse's part of community income. They are deductible by the payer as alimony and taxable to the recipient spouse only to the extent they are more than that spouse's part of community income.

You live in a community property state. You are separated but the special rules explained earlier under Spouses living apart all year don’t apply. Under a written agreement, you pay your spouse $12,000 of your $20,000 total yearly community income. Your spouse receives no other community income. Under your state law, earnings of a spouse living separately and apart from the other spouse continue as community property.

On your separate returns, each of you must report $10,000 of the total community income. In addition, your spouse must report $2,000 as alimony received. You can deduct $2,000 as alimony paid.

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.

After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return.

Your options for preparing and filing your return online or in your local community, if you qualify, include the following.

Free File. This program lets you prepare and file your federal individual income tax return for free using software or Free File Fillable Forms. However, state tax preparation may not be available through Free File. Go to IRS.gov/FreeFile to see if you qualify for free online federal tax preparation, e-filing, and direct deposit or payment options.

VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their own tax returns. Go to IRS.gov/VITA , download the free IRS2Go app, or call 800-906-9887 for information on free tax return preparation.

TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors. Go to IRS.gov/TCE or download the free IRS2Go app for information on free tax return preparation.

MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military OneSource. For more information, go to MilitaryOneSource ( MilitaryOneSource.mil/MilTax ).

Also, the IRS offers Free Fillable Forms, which can be completed online and then e-filed regardless of income.

Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant ( IRS.gov/EITCAssistant ) determines if you’re eligible for the earned income credit (EIC).

The Online EIN Application ( IRS.gov/EIN ) helps you get an employer identification number (EIN) at no cost.

The Tax Withholding Estimator ( IRS.gov/W4App ) makes it easier for you to estimate the federal income tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay, or tax due.

The First-Time Homebuyer Credit Account Look-up ( IRS.gov/HomeBuyer ) tool provides information on your repayments and account balance.

The Sales Tax Deduction Calculator ( IRS.gov/SalesTax ) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040).

IRS.gov/Help : A variety of tools to help you get answers to some of the most common tax questions.

IRS.gov/ITA : The Interactive Tax Assistant, a tool that will ask you questions and, based on your input, provide answers on a number of tax topics.

IRS.gov/Forms : Find forms, instructions, and publications. You will find details on the most recent tax changes and interactive links to help you find answers to your questions.

You may also be able to access tax information in your e-filing software.

There are various types of tax return preparers, including enrolled agents, certified public accountants (CPAs), accountants, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:

Primarily responsible for the overall substantive accuracy of your return,

Required to sign the return, and

Required to include their preparer tax identification number (PTIN).

The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.

Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.

Youtube.com/irsvideos .

Youtube.com/irsvideosmultilingua .

Youtube.com/irsvideosASL .

The IRS Video portal ( IRSVideos.gov ) contains video and audio presentations for individuals, small businesses, and tax professionals.

You can find information on IRS.gov/MyLanguage if English isn’t your native language.

The IRS is committed to serving taxpayers with limited-English proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and every VITA/TCE tax return site. The OPI Service is accessible in more than 350 languages.

Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or account-related issues, go to IRS.gov/LetUsHelp .

Form 9000, Alternative Media Preference, or Form 9000(SP) allows you to elect to receive certain types of written correspondence in the following formats.

Standard Print.

Large Print.

Audio (MP3).

Plain Text File (TXT).

Braille Ready File (BRF).

Go to IRS.gov/DisasterRelief to review the available disaster tax relief.

Go to IRS.gov/Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to IRS.gov/OrderForms to place an order.

Download and view most tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/eBooks .

IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as intended.

Go to IRS.gov/Account to securely access information about your federal tax account.

View the amount you owe and a breakdown by tax year.

See payment plan details or apply for a new payment plan.

Make a payment or view 5 years of payment history and any pending or scheduled payments.

Access your tax records, including key data from your most recent tax return, and transcripts.

View digital copies of select notices from the IRS.

Approve or reject authorization requests from tax professionals.

View your address on file or manage your communication preferences.

With an online account, you can access a variety of information to help you during the filing season. You can get a transcript, review your most recently filed tax return, and get your adjusted gross income. Create or access your online account at IRS.gov/Account .

This tool lets your tax professional submit an authorization request to access your individual taxpayer IRS online account. For more information, go to IRS.gov/TaxProAccount .

The safest and easiest way to receive a tax refund is to e-file and choose direct deposit, which securely and electronically transfers your refund directly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, destroyed, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online.

Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be affected if your SSN is used to file a fraudulent return or to claim a refund or credit.

The IRS doesn’t initiate contact with taxpayers by email, text messages (including shortened links), telephone calls, or social media channels to request or verify personal or financial information. This includes requests for personal identification numbers (PINs), passwords, or similar information for credit cards, banks, or other financial accounts.

Go to IRS.gov/IdentityTheft , the IRS Identity Theft Central webpage, for information on identity theft and data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Get an Identity Protection PIN (IP PIN). IP PINs are six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN. To learn more, go to IRS.gov/IPPIN .

Go to IRS.gov/Refunds .

Download the official IRS2Go app to your mobile device to check your refund status.

Call the automated refund hotline at 800-829-1954.

Payments of U.S. tax must be remitted to the IRS in U.S. dollars. Digital assets are not accepted. Go to IRS.gov/Payments for information on how to make a payment using any of the following options.

IRS Direct Pay : Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit Card, Credit Card, or Digital Wallet : Choose an approved payment processor to pay online or by phone.

Electronic Funds Withdrawal : Schedule a payment when filing your federal taxes using tax return preparation software or through a tax professional.

Electronic Federal Tax Payment System : Best option for businesses. Enrollment is required.

Check or Money Order : Mail your payment to the address listed on the notice or instructions.

Cash : You may be able to pay your taxes with cash at a participating retail store.

Same-Day Wire : You may be able to do same-day wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

The IRS uses the latest encryption technology to ensure that the electronic payments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money order.

Go to IRS.gov/Payments for more information about your options.

Apply for an online payment agreement ( IRS.gov/OPA ) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compromise program, go to IRS.gov/OIC .

Go to IRS.gov/Form1040X for information and updates.

Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns.

Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

You can now upload responses to all notices and letters using the Document Upload Tool. For notices that require additional action, taxpayers will be redirected appropriately on IRS.gov to take further action. To learn more about the tool, go to IRS.gov/Upload .

You can use Schedule LEP (Form 1040), Request for Change in Language Preference, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language. You may not immediately receive written communications in the requested language. The IRS’s commitment to LEP taxpayers is part of a multi-year timeline that began providing translations in 2023. You will continue to receive communications, including notices and letters, in English until they are translated to your preferred language.

Keep in mind, many questions can be answered on IRS.gov without visiting a TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment, so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate Service (TAS) Is Here To Help You

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. TAS strives to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights .

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;

You face (or your business is facing) an immediate threat of adverse action; or

You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

TAS has offices in every state, the District of Columbia, and Puerto Rico . To find your advocate’s number:

Go to TaxpayerAdvocate.IRS.gov/Contact-Us ;

Download Pub. 1546, The Taxpayer Advocate Service Is Your Voice at the IRS, available at IRS.gov/pub/irs-pdf/p1546.pdf ;

Call the IRS toll free at 800-TAX-FORM (800-829-3676) to order a copy of Pub. 1546;

Check your local directory; or

Call TAS toll free at 877-777-4778.

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to TAS at IRS.gov/SAMS . Be sure to not include any personal taxpayer information.

LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, go to the LITC page at TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List , at IRS.gov/pub/irs-pdf/p4134.pdf .

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Tax considerations when dividing property in divorce

Marital estate division offers challenges and opportunities for advisers..

  • Personal Financial Planning
  • Tax Planning

Tax considerations when dividing property in divorce

The emotional aspects of a divorce often interfere with planning for the efficient distribution of the marital estate. The shock and ill feelings may create a barrier between spouses that prevents even discussing issues. Tax practitioners need to know how to explain to a divorcing client the tax realities, to avoid any post-divorce tax surprises. Mistakes in property division or fraud can produce consequences that the tax practitioner may be unable to reverse.

OPPORTUNITIES FOR CPAs

Divorce engagements can require CPAs to act in either or both of two roles. One role is that of a forensic accountant in locating all assets and liabilities for marital division. The other role requires the CPA to apply his or her tax expertise to separating marital assets and payments.

In the forensic role, the CPA investigates and analyzes financial evidence and interviews parties to ensure all marital assets are included to prevent fraud. This forensic examination may be used as evidence at trial. Many states require forensic accountants to register as private investigators. The tax adviser role of a CPA helps divorcing couples make an orderly division of marital assets with the least tax burden.

Since divorcing spouses may have competing interests, CPAs with clients in divorce must take care to avoid professional conflicts of interest or their appearance. Generally, this means that although tax advisers may have represented both spouses in the past, they should represent one party but not both, or else obtain conflict-of-interest releases. The same consideration should extend to other family members who, as a result of the divorce, may have competing interests (see AICPA Code of Professional Conduct Rule 102, Integrity and Objectivity , especially Interpretation 102-2.03, Conflicts of Interest ). Rule 102 provides examples of situations in which an AICPA member’s objectivity could be impaired. One is “a member has provided tax or personal financial planning (PFP) services for a married couple who are undergoing a divorce, and the member has been asked to provide the services for both parties during the divorce proceedings” (see also the sidebar, “Divorce Issues Checklist”).

DIVISION OF MARITAL ASSETS

For wealthy couples, particularly, the distribution of property often is the most important aspect of a divorce or separation agreement. Unless they meet the requirements of Sec. 1041 or Sec. 2516, property transfers included in a divorce decree are subject to income taxes or gift taxes, respectively.

Property acquired by the spouses during their marriage (e.g., family home, retirement plan assets) generally qualifies as marital property. With the exception of qualified retirement plan assets covered under the Employee Retirement Income Security Act (ERISA), state laws ultimately govern the division of marital assets in a divorce, and state laws differ radically on who gets what when the marriage ends. The division of assets differs according to whether the divorce takes place in an equitable distribution (common law) state or in a community property state. Currently, nine states (listed below) are community property states, and the remaining 41 are common law states.

EQUITABLE DISTRIBUTION STATES

In the 41 equitable distribution states, the courts decide what is a fair, reasonable, and equitable division of assets. A court may decide to award a spouse anywhere from none to all of the property value. The courts focus on factors such as how long the marriage lasted, what property each party brought into the marriage, the earning power of each spouse, the responsibilities of each spouse in raising their children, the amount of retraining needed to make a spouse employable, the tax consequences of the asset distribution, and debt allocation. If the couple signed a prenuptial agreement or an agreement during the marriage, they have more control over how the property is divided. Additional aspects of an equitable distribution that should not be overlooked include:

  • Every asset acquired during the marriage and not covered by an agreement is subject to division.
  • The name on the asset title or the source of the money used to acquire assets is not controlling.
  • The parties to the divorce have the burden of identifying and proving the existence of assets.
  • One spouse may prove to the satisfaction of the court that the other spouse transferred assets with divorce in mind and have an equal amount of assets awarded to him or her.
  • Each spouse is responsible for any debts incurred during the marriage.

Thus, equitable distribution is considered a fair, but not necessarily equal, distribution of marital property.

COMMUNITY PROPERTY STATES

Community property is a form of concurrent ownership between a husband and wife created by statute in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (Alaska also allows a full or partial community property election). Community property laws, however, also are important for individuals residing in non-community-property states because property acquired in community property states and brought into non-community-property states ordinarily remains community property for state law and tax purposes. In addition, the separate property of each spouse brought into a community property state remains separate property, as long as it is properly segregated and identifiable. However, some states, such as California, may treat the property as community property for purposes of division during a divorce if it would have been community property had it been acquired in the community property state (see Cal. Fam. Code §125). The earnings of the divorcing couple are considered community property and thus are equally divided between the spouses. The same is true for assets bought by one spouse during marriage with funds earned during marriage.

Separate property in community property states may include property owned before marriage and, in some states, property acquired during the marriage with proceeds from the sale of separately owned assets. State law also may permit each spouse to inherit or receive by gift property that will not become community property.

FULL DISCLOSURE REQUIRED TO DIVIDE MARITAL ASSETS

Almost all states require the parties to disclose all material information needed to allow them to negotiate and agree upon a division of marital property. For example, California law states that because married couples are subject to the fiduciary rules imposed on persons in a confidential relationship (Cal. Fam. Code §721), this creates an obligation for a spouse to “make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest” (Cal. Fam. Code §1100(e)).

To ensure clients comply with the full-disclosure requirement, tax advisers should recommend that the divorcing couple inventory all property, including intangible assets such as advanced degrees, goodwill, and patents, that can result in substantially increased income in future years. Consideration of intangible assets in property settlements is becoming more important as courts express an increased willingness either to classify the intangibles as property subject to distribution or to require spouses to pay for reimbursement.

SEPARATION AGREEMENT AND DIVORCE DECREE

If the parties present their separation agreement to the court and the court issues a decree dissolving the marriage, the court may incorporate the agreement in the divorce decree, usually referred to as a merger. According to Section 306(d)(1) of the Uniform Marriage and Divorce Act (UMDA), merger occurs when the decree sets forth the terms of the separation agreement and orders the parties to perform its terms as an enforceable contract with enforcement as a judgment. Section 306(e) of UMDA provides for enforcement as a judgment, as well as contract remedies, if the separation agreement is in the divorce decree. A court order that specifically modifies an original divorce or separation instrument relates to the ending of the marriage and thus is incident to the divorce (with tax implications described later), even if it is issued many years after the divorce.

TRANSFERS DURING MARITAL DIFFICULTIES

A transfer of property by one spouse during a period of marital strife, whether or not divorce is imminent, might not be considered made unconditionally and is subject to additional scrutiny. All states give each spouse certain legal rights to share in the family’s assets if there is a divorce, but the scope of those rights varies significantly from state to state. In most states, the nondonor spouse may have set aside—as a fraudulent transfer—a gratuitous transfer of property made after the marriage has begun to deteriorate. Any unwritten custody arrangements where one spouse transfers property to a custodian for safekeeping with the understanding of a future repossession is highly suspect when the other spouse has no knowledge of the transfer.

TRANSFERS OF PROPERTY: ASSET DISSIPATION

The judicial doctrine of fraud on marital rights or dissipation of marital assets is an attempt to balance the transferor’s right to freely transfer his or her own property against the need to protect the legal entitlement of the transferor’s spouse to property. In most states, the law invalidates lifetime transfers if they are made with intent to deprive the transferor’s spouse of marital property rights, or if the transfers are made under circumstances where it would be unfair to permit them to stand.

To determine whether a spouse has attempted in a divorce situation to remove assets from the claims of the other spouse, courts look at all the relevant factors including:

  • Whether consideration is involved;
  • Size of the property transferred versus the transferring spouse’s total wealth;
  • Time elapsing between the transfer of property and the divorce;
  • Relations between the spouses at the time of transfer;
  • The source of the property transferred; and
  • Whether the transfer is revocable or illusory (i.e., the transferring spouse retains rights in or powers over the transferred property).

TAX CONSIDERATIONS

It is usually important that any property transfers between the divorcing spouses occur under circumstances that do not produce taxable gain or gift tax liability. Since no estate tax marital deduction is allowed for transfers to a former spouse, the transferor also will not want the transfer to be includible in his or her taxable estate.

Taxable gain. Under the general rule of Sec. 1041(a), a transfer of property to a former spouse incident to divorce will not cause the recognition of gain or loss. A transfer of property is incident to a divorce if the transfer occurs within one year after the date on which the marriage ceases or is “related to the cessation of the marriage,” which requires that the transfer:

  • Is pursuant to a divorce or separation instrument, and
  • Occurs not more than six years after the date on which the marriage ceases.

A divorce or separation instrument includes a modification or an amendment to the decree or instrument (Temp. Regs. Sec. 1.1041-1T(b), Q&A-7).

Transfer taxes. A transfer of marital property rights under a property settlement agreement that was incorporated into a divorce decree is not subject to gift tax. In Harris , 340 U.S. 106 (1950), the Supreme Court held that in such a case, the transfer would be pursuant to a court decree, not a “promise or agreement” between the spouses as required under gift tax law. However, subsequent decisions have limited the application of this rule to transfers that occur after the entry of a divorce decree.

If a transfer is not made under a property settlement agreement incorporated into a divorce decree, it may still not be subject to gift tax under Sec. 2516. Sec. 2516 provides that transfers of property or interests in property in settlement of marital property rights are treated as made for full and adequate consideration if the transfers are made pursuant to a written agreement and the divorce occurs within a three-year period beginning one year before the spouses enter into the agreement. Note that under Sec. 2516, the property transfer does not have to occur during the three-year period; the transfer may be made any time later, as long as it is “pursuant” to an agreement entered into during the three-year period.

Example. On Jan. 19, 2006, Mr. and Ms. Smith signed a separation and property settlement agreement to address contractual issues arising from the cessation of their marriage. The Smiths divorced in 2007. As part of the agreement, Mr. Smith transferred certain property to Ms. Smith. The agreement also provided:

Each party accepts the provisions herein made for him or her in lieu of and in full and final settlement and satisfaction of any and all claims or rights that either party may now or hereafter have against the other party for support or maintenance or for the distribution of property. However, each party has relied upon the representations of the other party concerning a complete and full disclosure of all marital assets in accepting the property settlement, and it is understood and agreed that this provision shall not constitute a waiver of any marital interest either party may have in any property owned but not fully disclosed by the other party as to existence or fair market value at the time this agreement is executed. Moreover, the failure of either party to disclose property shall constitute a material breach of this agreement, which shall give rise to whatever remedies at law or in equity may be available to the other party.

At some time after the parties signed the agreement, Ms. Smith began asking Mr. Smith whether all assets had been disclosed. She also hired an attorney to pursue claims arising from nondisclosure of assets. In 2011, Mr. Smith realized that he had inadvertently failed to disclose to Ms. Smith stock options ($16 million fair market value) that a court would consider marital assets. According to the terms of the agreement, Ms. Smith had not waived her marital interest in the stock options. Pursuant to a settlement (or an amendment to the original agreement), Mr. Smith paid Ms. Smith $6 million in 2011 in settlement of the claim that she had made regarding her interest in this property.

In considering this issue, Mr. Smith expressed concern that the transfer to Ms. Smith would exhaust his unified transfer tax credit and create a taxable gift transfer. However, because Mr. Smith made the payment pursuant to a written agreement relative to their marital and property rights, and Mr. and Ms. Smith divorced within the three-year period beginning one year prior to the signing of the agreement, under Sec. 2516, Mr. Smith was not subject to gift tax on the transfer and did not have to use his unified transfer tax credit.

Alimony. Sec. 71(b)(1) defines alimony as a transfer of cash made under a divorce or separation instrument to a spouse or former spouse under the following conditions:

  • The divorce or separation instrument does not designate the payment as anything other than alimony (not for child support).
  • The payments do not continue after the death of the recipient.
  • The provisions of the instrument do not preclude a deduction by the payor spouse and the recognition of income by the payee spouse.
  • Spouses who are legally separated under a decree of divorce or separate maintenance do not live in the same household when the transfer is made.

Certain payments to third parties on behalf of the spouse—for example, mortgage payments—qualify as payments in cash.

Alimony does not include child support payments (which are generally nondeductible by the payor and not included in the recipient’s gross income), noncash property settlements, payments that are part of the community income of the payee, payments to maintain the payor’s property for use by the payee, or the value of such use. If the parties are married at the end of the tax year and file a joint return, payments made during the year do not qualify as alimony.

Generally, alimony is deductible by the payor and included in the recipient’s gross income. Thus, there is inherent tension between property settlement and alimony. The payor may want a low property settlement and high alimony amounts for the tax deduction. The payee spouse, however, wants the reverse—that is, a property settlement not includible in income rather than taxable alimony.

To make property payments deductible, the payor spouse may try to disguise the payments as alimony. For example, the payor may make large “alimony” payments shortly after the divorce, followed by smaller alimony payments in subsequent years. Sec. 71(f) prohibits excessive front-loading of alimony payments and requires the payor spouse to recharacterize (or “recapture”) part of the alimony payments as nondeductible property transfers if there is excessive front-loading. Tax advisers can help their divorcing clients by reviewing any nonuniform payment schedule to make sure it does not violate the anti-front-loading rules.

ENSURING SAFETY

In planning for the division of assets and the obligations of the parties, safeguards can be put into place to avoid failed expectations. For example, parties may contractually decide that new life insurance is needed to fulfill the payor’s alimony and child support payment obligations in the event of death. The parties may contract to leave the ex-spouse as beneficiary (hanging beneficiary) on life insurance policies and retirement plans to ensure that the ex-spouse receives his or her bargained-for interests. If the beneficiary is designated as “my current spouse” and the owner spouse remarries, the ex-spouse no longer receives his or her interest when death or retirement occurs.

Safeguards also may be needed when a payor spouse has cyclical income business interests or illiquid business interests; the spouses may agree that an alimony trust or maintenance trust (Sec. 682 trust) is the best solution. An alimony trust can protect the payee (ex-spouse) from the death or financial insolvency of the payor before all of the payments have been made.

EMERGING WHOLE

Spouses in divorce situations must disclose all property, and this property must be distributed to the proper party. When fraud, errors, or omissions occur, a CPA needs to be capable of helping his or her client avoid the negative tax consequences of transfers or payments made in connection with the divorce. The client’s objective is to emerge from the divorce economically whole while minimizing taxes.  

Divorce Issues Checklist

Among the many tax practice resources the AICPA makes available to Tax Section members (see Resources box at the end of this article) is an eight-page checklist of tax considerations for CPAs representing clients who are divorcing or recently divorced. Some of its points are:

  • Determine which party to represent and prepare a new engagement letter, privacy disclosure notice, power of attorney, and similar documents.
  • Consider obtaining conflict-of-interest releases where indicated.
  • Review any prenuptial agreement.
  • Consider the effect of joint liability for any taxes owed.
  • Determine responsibility between spouses for payment of taxes, allocation of estimated tax payments, tax refunds, carryovers, and potential recapture.
  • Consider the need for (or, if completed, obtain a copy of) a qualified domestic relations order for any individual retirement accounts and other retirement plans.
  • If there are children with investment income, reevaluate “kiddie tax” implications.
  • For a property settlement, obtain or prepare a schedule of assets with tax considerations for each asset.
  • Consider the effect of divorce on insurance coverage, beneficiary designations, mortgages and other debts, financial and estate planning, etc.

Source: Divorce Issues Checklist , AICPA Tax Section.

EXECUTIVE SUMMARY

CPAs can provide forensic services and/or tax advice concerning identification and division of marital property for a client going through a divorce. Since divorcing spouses are likely to have competing interests, however, CPAs providing these services should take care to avoid conflicts of interest.

In the nine community property states, property is owned concurrently between spouses. In the rest, referred to as common law states, courts must determine an equitable distribution of the spouses’ property between them.

Property transfers by a spouse during a period of marital strife may be subject to heightened judicial scrutiny in an equitable distribution of property. A court may invalidate transfers made to deprive the other spouse of assets by fraud or dissipation.

A transfer incident to divorce from one spouse to the other generally will not result in taxable gain or loss. However, divorcing couples should be made aware of requirements in the Code and regulations for a transfer to be considered incident to divorce. Similarly, alimony typically entails tax planning.

Ray A. Knight ( [email protected] ) is a visiting professor of accountancy, and Lee G. Knight ( [email protected] ) is the Hylton Professor of Accountancy, both at Wake Forest University in Winston-Salem, N.C.

To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at [email protected] or 919-402-4434.

AICPA RESOURCES

Publications

  • Divorce Issues Checklist , available to AICPA Tax Section members with many other tax practice guides and other resources at tinyurl.com/b7k4g98 after logging in. To join the Tax Section, see below.
  • Divorce: The Accountant as Financial Expert (#091055)
  • Forensic Accounting for Divorce Engagements: A Practical Guide, Third Edition (#091029)

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  • Family Law (#154110)
  • Forensic Accounting: Fraudulent Reporting and Concealed Assets (#731958)

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How to transfer home ownership after a divorce

Here’s what to know when transferring financial responsibility for your property..

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In this guide

What is a quitclaim deed?

What kind of paperwork will i need, how can i ensure that my forms are completed accurately.

  • Ask an expert: What happens if I don't sign a deed?

Does a quitclaim deed affect my mortgage liability?

Will i need to pay a transfer tax, ask an expert: how can i make the process go as smoothly as possible, seek the assistance of a professional.

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Of all the assets owned by a married couple, property can become the most contentious to divide during a divorce. If you or your spouse are interested in assuming ownership of your family home, you can do so with a quitclaim deed.

A quitclaim deed is the legal means used to transfer a person’s interest in real estate. Its name comes from the idea that a person is “quitting” their claim on a piece of property.

With a quitclaim deed, the spouse who intends to keep the home is given “valuable consideration” for the home, which can be money or something else of value. Ownership can also be transferred for “good consideration” — or payment that has no value, like gratitude.

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To transfer ownership of your property, first visit your county recorder’s office to request:

  • A quitclaim deed form. You’ll enter the date, the value of your home for consideration and a legal description and location of your property.
  • A Preliminary Change of Ownership form. The spouse who is intending to keep the home completes this form.

To avoid rejection of your forms for incomplete or inaccurate information, you’ll need to:

  • List the full name of the spouses involved in the transfer of property ownership.
  • Identify the proposed property’s location, value for consideration and “legal description” — or property dimensions and boundaries.
  • Sign the forms in front of a notary public, who will also sign them as a witness.
  • Submit your completed forms to be recorded in the property’s county.

If you have specific questions about the forms or your property when completing them, seek the assistance of your family law attorney.

Ask an expert: What happens if I don’t sign a deed?

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David Reischer, Esq. Family Law Attorney & CEO of LegalAdvice.com

To remove a person from title on real estate after a divorce, both spouses will need to sign a deed. In divorce contexts, both spouses will sign a deed transferring the former marital property to only one of the ex-spouses. In my experience, former spouses that fail to divide their property after a judgment is issued by a court will create potential problems that will cause headaches down the road. Many years may pass until a person decides to sell or refinance their property, only to learn that his or her ex is still on the deed. Acting quickly after a divorce decree is issued by the court will give a person the best opportunity to avoid future headaches.

Your mortgage liability is not transferred through a quitclaim deed. Whichever spouse gives up their interest in the home could still find themselves responsible for half of that property’s mortgage debt and any lien on the property.

When you transfer the title of your property with a quitclaim deed, the county in which the home is located may impose a transfer tax on both you and your spouse. The tax you’re charged will depend on your county, but it tends to be 1% of the home’s purchase price. Keep in mind that the county could reassess the value of your property at the time of transfer, resulting in higher property taxes for the spouse taking over ownership.

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Joseph Hoelscher Managing Attorney, Hoelscher Gebbia Cepeda PLLC

Don’t deplete the asset. We use a standard order to prevent parties from damaging or borrowing against community assets, but people still do these things. I had a client whose spouse was still in the home while the divorce was happening. When we set a hearing to remove her from the home, she trashed it while he was at work. Eventually, all those extra costs got taxed against her by the court. Fight the system, not each other. The divorce process will take a huge cut of the family’s net worth, so both parties should fight together to preserve what they’ve got and think twice before going to court. Every time a lawyer gets involved, your bill goes up and so does the other team’s. That money is shrinking the pie you want to divide. Reassess your finances immediately. You’re going from one household to two. You need your own budget. Talk openly with your lawyer about what you can reasonably expect to be left with after the divorce and figure out how to live on it.

As with all real estate decisions, talk to your family law attorney, a tax professional or another expert to determine your specific responsibilities when transferring ownership of your property during or after your divorce.

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Leah Fallon

Leah Fallon is a freelance journalist and editor, specializing in personal finance and small business. She owns Birch Tree Bookstore in Leesburg, Virginia.

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18 Responses

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The court gave me possession of my home years ago when my wife and I divorced. My ex wife only wanted her clothes and one vehicle from the house. Since then, we have both moved on, both married, and we have no communication with one another. I am now thinking about selling my house. Do I have to give my ex wife some of the proceeds?

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Thank you for getting in touch with Finder.

If it was ordered by the court that you’re the sole owner of the house and your ex-wife did not contest that, it is up to you if you’re giving her some of the proceeds or not. If your wife spent some money in purchasing the property and you consider her part, you may share some of the proceeds. You may verify this by speaking to your family law attorney.

I hope this helps.

Thank you and have a wonderful day!

Cheers, Jeni

My son is divorced from his wife and in the divorce agreement she received a lump sum payment and signed off to be removed from deed to the house in Florida. A new deed was filed and the wife was removed and my son is on the deed alone. *Question* Does anything have to be done regarding title insurance which still has her name on it? Or just having a copy of divorce and agreement and new title with just his name on it sufficient. Thanks Peter

Thanks for getting in touch with Finder! Once a divorce has been filed, all assets and documentation that was on partnership prior must be addressed accordingly. Given this, since as of current, the title deed doesn’t bear the ex-wife’s name, both parties should settle on who stays on the insurance for the property. It would be best to seek legal advise and review the insurance policy in moving forward.

Hope this helps!

With care, Nikki

My SOs friend wants to give us his paid for trailer home, free of charge. Would a Quitclaim Deed be appropriate to use?

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Hi Jennemycro,

Thank you for reaching out to Finder.

If you are buying a trailer and land, you’ll get a deed for the land, but not necessarily for the trailer. A trailer is only considered real property if it is permanently attached to land. If you are buying a trailer to pull behind your truck for touring the country, it comes with a title, not a deed.

But if you buy a mobile home attached to real property, you’ll get a deed for both. Like a cabin or a villa, a mobile home sitting on a foundation or otherwise attached permanently is real property, and ownership passes with a deed. However, the type of real property you buy does not determine the type of deed you get. A quitclaim would only work if the trailer is attached to the land. Hope this helps!

Cheers, Reggie

My husband and I file for divorce and it is now final. We own a home together, but we really want to do is to be able to take my name off the deed and the mortgage, without having to sell or refinance at this time. We are residents here in St George, Utah, and my question is there a way of going about this without having to sell the house? I’d appreciate if someone could tell me the right direction on doing so. Thank you, Michelle.

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Hi Michelle,

Thanks for getting in touch with Finder. I’m sorry to hear about your divorce. I hope all goes well for you.

Regarding your question, you would need to directly get in touch with your lender. In most cases, to remove your name from a mortgage loan, refinancing or selling is needed. However, sometimes, your lender could offer you an alternative solution especially that the reason you want to remove your name is due to a divorce.

By speaking with your lender, you would know more about your situation and other possible courses of action.

I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

Have a wonderful day!

Cheers, Joshua

My ex still has her name on the deed. If a quitclaim is filed, can she then claim to be not financially responsible?

Thanks for getting in touch with Finder. I hope all is well with you. :)

If a quitclaim deed is successfully filed, your ex would be removed from the title. However, if your ex is on the mortgage, a quitclaim does not remove her from any financial obligations for the property. Thus, your ex would still need to may repayments for the mortgage if this is the case.

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26 CFR § 1.1041-1T - Treatment of transfer of property between spouses or incident to divorce (temporary).

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Q–1: How is the transfer of property between spouses treated under section 1041?

A–1: Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse or, if the transfer is incident to a divorce, a former spouse . The following questions and answers describe more fully the scope , tax consequences and other rules which apply to transfers of property under section 1041.

(a) Scope of section 1041 in general.

Q–2: Does section 1041 apply only to transfers of property incident to divorce?

A–2: No. Section 1041 is not limited to transfers of property incident to divorce. Section 1041 applies to any transfer of property between spouses regardless of whether the transfer is a gift or is a sale or exchange between spouses acting at arm's length (including a transfer in exchange for the relinquishment of property or marital rights or an exchange otherwise governed by another nonrecognition provision of the Code). A divorce or legal separation need not be contemplated between the spouses at the time of the transfer nor must a divorce or legal separation ever occur.

Q–3: Do the rules of section 1041 apply to a transfer between spouses if the transferee spouse is a nonresident alien?

A–3: No. Gain or loss (if any) is recognized (assuming no other nonrecognition provision applies) at the time of a transfer of property if the property is transferred to a spouse who is a nonresident alien .

Q–4: What kinds of transfers are governed by section 1041?

A–4: Only transfers of property (whether real or personal, tangible or intangible) are governed by section 1041. Transfers of services are not subject to the rules of section 1041.

Q–5: Must the property transferred to a former spouse have been owned by the transferor spouse during the marriage?

A–5: No. A transfer of property acquired after the marriage ceases may be governed by section 1041.

(b) Transfer incident to the divorce.

Q–6: When is a transfer of property incident to the divorce ?

A–6: A transfer of property is incident to the divorce in either of the following 2 circumstances—

(1) The transfer occurs not more than one year after the date on which the marriage ceases, or

(2) The transfer is related to the cessation of the marriage.

Q–7: When is a transfer of property related to the cessation of the marriage ?

A–7: A transfer of property is treated as related to the cessation of the marriage if the transfer is pursuant to a divorce or separation instrument, as defined in section 71(b)(2), and the transfer occurs not more than 6 years after the date on which the marriage ceases. A divorce or separation instrument includes a modification or amendment to such decree or instrument. Any transfer not pursuant to a divorce or separation instrument and any transfer occurring more than 6 years after the cessation of the marriage is presumed to be not related to the cessation of the marriage. This presumption may be rebutted only by showing that the transfer was made to effect the division of property owned by the former spouses at the time of the cessation of the marriage. For example , the presumption may be rebutted by showing that (a) the transfer was not made within the one- and six-year periods described above because of factors which hampered an earlier transfer of the property , such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage, and (b) the transfer is effected promptly after the impediment to transfer is removed.

Q–8: Do annulments and the cessations of marriages that are void ab initio due to violations of state law constitute divorces for purposes of section 1041?

(c) Transfers on behalf of a spouse.

Q–9: May transfers of property to third parties on behalf of a spouse (or former spouse) qualify under section 1041?

A–9: Yes. There are three situations in which a transfer of property to a third party on behalf of a spouse (or former spouse) will qualify under section 1041, provided all other requirements of the section are satisfied. The first situation is where the transfer to the third party is required by a divorce or separation instrument. The second situation is where the transfer to the third party is pursuant to the written request of the other spouse (or former spouse). The third situation is where the transferor receives from the other spouse (or former spouse) a written consent or ratification of the transfer to the third party. Such consent or ratification must state that the parties intend the transfer to be treated as a transfer to the nontransferring spouse (or former spouse) subject to the rules of section 1041 and must be received by the transferor prior to the date of filing of the transferor's first return of tax for the taxable year in which the transfer was made. In the three situations described above, the transfer of property will be treated as made directly to the nontransferring spouse (or former spouse) and the nontransferring spouse will be treated as immediately transferring the property to the third party. The deemed transfer from the nontransferring spouse (or former spouse) to the third party is not a transaction that qualifies for nonrecognition of gain under section 1041. This A–9 shall not apply to transfers to which § 1.1041 –2 applies.

(d) Tax consequences of transfers subject to section 1041.

Q–10: How is the transferor of property under section 1041 treated for income tax purposes?

A–10: The transferor of property under section 1041 recognizes no gain or loss on the transfer even if the transfer was in exchange for the release of marital rights or other consideration. This rule applies regardless of whether the transfer is of property separately owned by the transferor or is a division (equal or unequal) of community property . Thus, the result under section 1041 differs from the result in United States v. Davis, 370 U.S. 65 (1962) .

Q–11: How is the transferee of property under section 1041 treated for income tax purposes?

A–11: The transferee of property under section 1041 recognizes no gain or loss upon receipt of the transferred property . In all cases, the basis of the transferred property in the hands of the transferee is the adjusted basis of such property in the hands of the transferor immediately before the transfer . Even if the transfer is a bona fide sale, the transferee does not acquire a basis in the transferred property equal to the transferee 's cost (the fair market value). This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than its fair market value at the time of transfer (or the value of any consideration provided by the transferee) and applies for purposes of determining loss as well as gain upon the subsequent disposition of the property by the transferee . Thus, this rule is different from the rule applied in section 1015(a) for determining the basis of property acquired by gift.

Q–12: Do the rules described in A–10 and A–11 apply even if the transferred property is subject to liabilities which exceed the adjusted basis of the property?

A–12: Yes. For example , assume A owns property having a fair market value of $10,000 and an adjusted basis of $1,000. In contemplation of making a transfer of this property incident to a divorce from B, A borrows $5,000 from a bank , using the property as security for the borrowing. A then transfers the property to B and B assumes, or takes the property subject to, the liability to pay the $5,000 debt. Under section 1041, A recognizes no gain or loss upon the transfer of the property , and the adjusted basis of the property in the hands of B is $1,000.

Q–13: Will a transfer under section 1041 result in a recapture of investment tax credits with respect to the property transferred?

A–13: In general, no. Property transferred under section 1041 will not be treated as being disposed of by, or ceasing to be section 38 property with respect to, the transferor. However, the transferee will be subject to investment tax credit recapture if, upon or after the transfer , the property is disposed of by, or ceases to be section 38 property with respect to, the transferee . For example , as part of a divorce property settlement, B receives a car from A that has been used in A's business for two years and for which an investment tax credit was taken by A. No part of A's business is transferred to B and B's use of the car is solely personal. B is subject to recapture of the investment tax credit previously taken by A.

(e) Notice and recordkeeping requirement with respect to transactions under section 1041.

Q–14: Does the trasnsferor of property in a transaction described in section 1041 have to supply, at the time of the transfer , the transferee with records sufficient to determine the adjusted basis and holding period of the property at the time of the transfer and (if applicable) with notice that the property transferred under section 1041 is potentially subject to recapture of the investment tax credit?

A–14: Yes. A transferor of property under section 1041 must, at the time of the transfer , supply the transferee with records sufficient to determine the adjusted basis and holding period of the property as of the date of the transfer . In addition, in the case of a transfer of property which carries with it a potential liability for investment tax credit recapture , the transferor must, at the time of the transfer , supply the transferee with records sufficient to determine the amount and period of such potential liability . Such records must be preserved and kept accessible by the transferee .

(f) Property settlements—effective dates, transitional periods and elections.

Q–15: When does section 1041 become effective?

A–15: Generally, section 1041 applies to all transfers after July 18, 1984. However, it does not apply to transfers after July 18, 1984 pursuant to instruments in effect on or before July 18, 1984. (See A–16 with respect to exceptions to the general rule .)

Q–16: Are there any exceptions to the general rule stated in A–15 above?

A–16: Yes. Two transitional rules provide exceptions to the general rule stated in A–15. First, section 1041 will apply to transfers after July 18, 1984 under instruments that were in effect on or before July 18, 1984 if both spouses (or former spouses ) elect to have section 1041 apply to such transfers . Second, section 1041 will apply to all transfers after December 31, 1983 (including transfers under instruments in effect on or before July 18, 1984) if both spouses (or former spouses ) elect to have section 1041 apply. (See A–18 relating to the time and manner of making the elections under the first or second transitional rule .)

Q–17: Can an election be made to have section 1041 apply to some, but not all, transfers made after December 31, 1983, or some but not all, transfers made after July 18, 1984 under instruments in effect on or before July 18, 1984?

A–17: No. Partial elections are not allowed . An election under either of the two elective transitional rules applies to all transfers governed by that election whether before or after the election is made, and is irrevocable.

(g) Property settlements—time and manner of making the elections under section 1041.

Q–18: How do spouses (or former spouses ) elect to have section 1041 apply to transfers after December 31, 1983, or to transfers after July 18, 1984 under instruments in effect on or before July 18, 1984?

A–18: In order to make an election under section 1041 for property transfers after December 31, 1983, or property transfers under instruments that were in effect on or before July 18, 1984, both spouses (or former spouses ) must elect the application of the rules of section 1041 by attaching to the transferor's first filed income tax return for the taxable year in which the first transfer occurs, a statement signed by both spouses (or former spouses ) which includes each spouse 's social security number and is in substantially the form set forth at the end of this answer.

In addition, the transferor must attach a copy of such statement to his or her return for each subsequent taxable year in which a transfer is made that is governed by the transitional election . A copy of the signed statment must be kept by both parties.

The election statements shall be in substantially the following form:

In the case of an election regarding transfers after 1983:

The undersigned hereby elect to have the provisions of section 1041 of the Internal Revenue Code apply to all qualifying transfers of property after December 31, 1983. The undersigned understand that section 1041 applies to all property transferred between spouses , or former spouses incident to divorce. The parties further understand that the effects for Federal income tax purposes of having section 1041 apply are that (1) no gain or loss is recognized by the transferor spouse or former spouse as a result of this transfer ; and (2) the basis of the transferred property in the hands of the transferee is the adjusted basis of the property in the hands of the transferor immediately before the transfer , whether or not the adjusted basis of the transferred property is less than, equal to, or greater than its fair market value at the time of the transfer . The undersigned understand that if the transferee spouse or former spouse disposes of the property in a transaction in which gain is recognized, the amount of gain which is taxable may be larger than it would have been if this election had not been made.

In the case of an election regarding preexisting decrees:

The undersigned hereby elect to have the provisions of section 1041 of the Internal Revenue Code apply to all qualifying transfers of property after July 18, 1984 under any instrument in effect on or before July 18, 1984. The undersigned understand that section 1041 applies to all property transferred between spouses , or former spouses incident to the divorce. The parties further understand that the effects for Federal income tax purposes of having section 1041 apply are that (1) no gain or loss is recognized by the transferor spouse or former spouse as a result of this transfer ; and (2) the basis of the transferred property in the hands of the transferee is the adjusted basis of the property in the hands of the transferor immediately before the transfer , whether or not the adjusted basis of the transferred property is less than, equal to, or greater than its fair market value at the time of the transfer . The undersigned understand that if the transferee spouse or former spouse disposes of the property in a transaction in which gain is recognized, the amount of gain which is taxable may be larger than it would have been if this election had not been made.

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TAX ISSUES WHEN DIVIDING PROPERTY INCIDENT TO DIVORCE

Tax-free transfers incident to divorce, general rule, meaning of “incident to divorce”.

Section 1041 applies to all transfers between spouses and also to transfers between former spouses, to the extent made incident to divorce between the former spouses. (IRC § 1041, subd (a).) A transfer of property is “incident to the divorce” if the transfer (1) occurs within one year after the date on which the marriage ceases, or (2) is related to the cessation of the marriage. (IRC § 1041, subd (c).)

Treasury Regulation 1.1041-IT(b) states that a transfer is “related to” the cessation of the marriage when the transfer is required under the divorce or separation instrument, and the transfer takes place within six years from the date of the divorce.”

If the transfer is not made pursuant to a divorce or separation instrument, or occurs more than six years after cessation of the marriage, it is presumed to be unrelated to cessation of the marriage. (Treas. Regs. § 1.1041-1T, A-7; see Ltr.Rul. 9306015.) The presumption may be rebutted “only by showing that the transfer was made to effect the division of property owned by the former spouses” at the time their marriage ceased. (Regs. § 1.1041-1T, A-7.)

“For example, the presumption may be rebutted by showing that (a) the transfer was not made within the one-and six-year periods described above because of factors which hampered an earlier transfer of the property, such as legal or business impediments to transfer or disputes concerning the value of the property owned at the time of the cessation of the marriage, and (b) the transfer is effected promptly after the impediment to transfer is removed.” (Id.)

In Private Letter Ruling 9235026 (May 29, 1992), the IRS ruled that the six-year presumption was overcome when the transfer of the Wife’s interest in business property to her ex-husband was incident to divorce even though the transfer occurred more than six years after the divorce. The IRS found that the transfer was delayed because of a dispute over the purchase price and payments terms, and that the transfer was effected promptly after the dispute was resolved. The IRS noted that Temp. Treas. Reg. §1.1041-1T, A-7 specifically provides that the presumption may be rebutted if factors such as “disputes concerning the value of the property” to be transferred prevented an earlier transfer.

Transfer to Non-Resident Alien Spouse

When the spouse who receives property incident to divorce is a nonresident alien, taxable gain will be recognized on the transfer. (IRC §1041, subd. (d).) The spouse making the transferor will be taxed on the gain (the difference between the fair market value of the property transferred and his or her adjusted tax basis in the property). The rationale for treating nonresident aliens differently is that the IRS assumes that it will eventually receive taxes on any gain realized when a spouse who receives property incident to divorce sells the property, since the spouse takes the transferor’s basis in the property; however, in the case of a nonresident alien, there may be little chance that the gain is ever reported or that tax will be paid.

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Assignment of Income Doctrine

Income is ordinarily taxed to the person who earns it; one vested with the right to receive income cannot escape taxes by an assignment of the right to receive that income to another. (Lucas v. Earl (1930) 281 U.S. 111 (1930); Harrison v. Schaffner, 312 U.S. 579, 580; IRS Regulations, § 1.454-1(a).) Under the assignment of income doctrine, the transferor remains obligated to pay taxes on the accrued income he or she has assigned.

The assignment of income doctrine applies when the right to receive the income has already accrued, and the parties assign that right to the spouse who did not earn the income. For example, in a transfer of Series E or EE United States Savings Bonds to a spouse or former spouse, the transferor must include the accrued interest on the bonds in his or her gross income in the year of the transfer. (Rev. Rul. 87-112.) IRC § 1041 cannot be used to avoid recognition of the gain by transferring the right to receive the income already earned.

However, when an income-producing asset is transferred, the right to receive future income is transferred along with the underlying asset, such that the spouse receiving the asset is responsible for paying taxes on that income. For example, if a spouse is awarded an apartment building in a divorce, the spouse receiving the building will not recognize any gain on the transfer and will be responsible for reporting the rental income on his or her tax return.

On the other hand, if the parties make an agreement that one spouse will be solely responsible for paying taxes on the past rental income from the building (when it was held as marital property), the assignment of income doctrine will override that contractual allocation and require both parties to report the taxes.

Another example is where Wife agrees to pay Husband 40% of her bonus income as taxable spousal support. When Wife receives the bonus, she will have to report 100% of it as taxable wages, however she gets a deduction for the portion she pays to Husband as alimony. Revenue Ruling 2002-22 held that a taxpayer who transfers interests in nonstatutory stock options and nonqualified deferred compensation to the taxpayer’s former spouse incident to divorce is not required to include an amount in gross income upon the transfer.

The ruling also concludes that the former spouse, rather than the taxpayer, is required to include an amount in gross income when the former spouse exercises the stock options or when the deferred compensation is paid or made available to the former spouse.

The ruling states: . . . applying the assignment of income doctrine in divorce cases to tax the transferor spouse when the transferee spouse ultimately receives income from the property transferred in the divorce would frustrate the purpose of § 1041 with respect to divorcing spouses. That tax treatment would impose substantial burdens on marital property settlements involving such property and thwart the purpose of allowing divorcing spouses to sever their ownership interests in property with as little tax intrusion as possible.

Further, there is no indication that Congress intended § 1041 to alter the principle established in the pre-1041 cases such as Meisner [v. United States, 133 F.3d 654 (8th Cir. 1998] that the application of the assignment of income doctrine generally is inappropriate in the context of divorce.(Rev. Ruling 2002-22, see also Rev. Ruling 2004-60 (FICA taxes are deducted from the payment is made to the non-employee spouse).)

Interest on Equalizing Payments

If a spouse is required to pay interest to the other spouse regarding an equalizing payment, the interest will be treated as income to the spouse who received it. The spouse who pays the interest can take a deduction for those payments only if the debt was incurred to buy-out the other spouses interest in business or investment property. (See Armacost v. C.I.R. (1998) TC Memo 1998-150.)

The court in Armacost held Interest on indebtedness must be allocated in the same manner as its underlying debt. [Citation.] Underlying debt is allocated by tracing specific disbursements of the proceeds to specific expenditures. If the underlying debt is incurred as a personal expenditure, the interest on that debt may not be deducted under section 163 except to the extent such interest is qualified residence interest.

[Citations.] But if the underlying debt is incurred to acquire investment property, the interest on that debt is deductible under section 163 as investment interest. [Int.Rev. Code §163 (h)(2)(B).] Investment interest is defined as any interest paid on indebtedness properly allocable to investment property. Section 163(d).

Investment property includes property producing gross income from interest, dividends, annuities or royalties not derived in the taxpayer’s trade or business, or property held in the course of the taxpayer’s trade or business which is neither a passive activity nor an activity in which the taxpayer materially participates. Section 163(d)(5)(A), 469(e)(1).

State Law May be Different

Section 1041 applies only to taxes under federal law. The transfer could still be taxable under state law.

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CONSIDERING TAX BASIS WHEN DIVIDING PROPERTY

Community property laws require the court to divide the community estate “equally” unless required otherwise by law or absent the written agreement of the parties. (See, e.g., Cal. Fam. Code, § 2550.) If tax consequences are not considered when dividing assets, the ultimate division is often far from being equal.

It is the attorney’s role to investigate the tax implications of the proposed division and to advise the client accordingly. In particular, the difference between the fair market value of an asset and its tax basis must be taken into account when evaluating whether there is an “equal” division of the marital estate. In negotiating settlements, the parties are free to discount property based on built-in tax liability associated with an asset.

California Rule

Family courts at least in California, on the other hand, have been reluctant to take tax effects into account except when it is clear that the party will suffer immediate tax consequences from an expected sale of the property or from the transfer itself. An often-cited case in this area is In re Marriage of Fonstein (1976) 17 Cal.3d 738 where the California Supreme Court held :

“Regardless of the certainty that the tax liability will be incurred if in the future an asset is sold, liquidated or otherwise reduced to cash, the trial court is not required to speculate on or consider such tax consequences in the absence of proof that a taxable event has occurred during the marriage or will occur in connection with the division of the community property.” (Id. at p. 749, fn. 5.)

In Fonstein, the trial court assigned husband’s minority interest in a law partnership to him in a marital dissolution action after discounting its value for future tax consequences when sold. Under the partnership agreement, the husband had the right to withdraw from the partnership voluntarily and would receive a sum of money based on a formula set forth in the agreement. Although the husband had no intention of withdrawing from the partnership, the trial court discounted the value of the partnership interest by the taxes he would have to pay if he later decided to withdraw.

The California Supreme Court phrased the issue before it in the following terms:”In valuing Harold’s interest in the law partnership on the basis of his contractual right to withdraw from the firm, did the trial court err by taking into account the tax consequences which he might incur if he did withdraw at some later time, and by reducing the value of his interest accordingly, even though Harold was not withdrawing and had no intention to withdraw?”(Id. at p. 747 (emphasis added).)

The court answered the question as follows:”…[S]ince there is no indication in the record that Harold is withdrawing, must withdraw, or intends to withdraw from his firm in order to obtain the cash with which to pay Sarane her share of the community property, there is no equitable reason for allocating to Sarane a portion of the tax liability which may be incurred if and when he does withdraw. [Citation.]

In short, …, although Harold conceivably may do a number of things concerning his law partnership which may create tax consequences, ‘there is no indication that he must or intends to do’ any of them.” (Id. at p. 750.)In making its ruling, the court referred to the “immediate and specific tax liability” language it used in its earlier decision in Weinberg v. Weinberg (1967) 67 Cal.2d 557. (Fonstein, 17 Cal.3d at p. 749, fn. 5.)

This remains the rule in California, however when property is ordered sold and the proceeds divided, the court must take income taxes on the sale into account. (See In re Marriage of Epstein (1979) 24 Cal.3d 76.) In Epstein, the trial court ordered the family residence sold and the proceeds divided between the parties in such a manner as to equalize the division of the community property.

Since husband received personal property of substantially greater value than that awarded wife, she was due to receive the larger share of the proceeds from the sale of the house. The trial court’s order, however, did not mention the possibility that the parties might incur state and federal capital gains tax liability as a result of the sale of the residence. The wife appealed, arguing that the trial court erred by not expressly considering tax liability in its order.

The California Supreme Court agreed with wife that the court’s division of community property should take account of any taxes actually paid as a result of the court-ordered sale of the residence. The court explained: “Unlike Fonstein, which involved a speculative future tax liability arising on the hypothetical sale of an asset, in the present case the taxable event, the sale of the residence, occurs as a result of the enforcement of the court’s order dividing the community property.” (Epstein (1979) 24 Cal.3d at p. 88.)

Exclusion of Gain on Sale of Residence

In calculating gain on the sale of a principal residence, Internal Revenue Code section 121 provides that a taxpayer can exclude up to $250,000 of gain from the sale of principal residence if filing a separate tax return, or up to $500,000 for a joint return, if the following requirements are met:

  • During the 5-year period ending on the date of the sale or exchange, the residence must have been owned by either spouse and used by both spouses as their principal residence for periods aggregating 2 years or more.
  • An individual shall be treated as using property as such individual’s principal residence during any period of ownership while such individual’s spouse or former spouse is granted use of the property under a divorce or separation instrument.
  • If a residence is transferred to a taxpayer incident to a dissolution of marriage, the time the taxpayer’s spouse or former spouse owned the residence is added to the taxpayer’s period of ownership.
  • The exclusion can only be applied to one residence every two years, excluding pre-May 7, 1997 sales. (Treas. Regs. § 1.121-2; California has passed conforming legislation, Cal. Rev. & Tax. Code §17152.)
  • (Treas. Regs. § 1.121-2; California has passed conforming legislation, Cal. Rev. & Tax. Code §17152.)

Need for Records

Temporary Regulations provide that “a transferor of property under §1041 must, at the time of the transfer, supply the transferee with records sufficient to determine the adjusted basis and holding period of the property as of the date of the transfer…. Such records must be preserved and kept accessible by the transferee.” (Temp. Treas. Reg. § 1.1041-1T, A-14.)

The judgment should specifically require the exchange of this information.

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CARRYFORWARDS

The right to deduct losses associated with an asset may be transferred together with the asset which generated the loss, or may be personal to the taxpayer and not subject to transfer, depending on the type of asset transferred. This is a complicated area because the loss carryforward was typically reported on a joint tax return during marriage and then, after the divorce, it may have to allocated between the parties for their separate returns. Still, the effort may be worthwhile due to the value of these carryforwards.

Net Operating Losses

A net operating loss from the operation of a business may be carried back to the prior two years (by amending the tax returns for the prior years) or carried over to the succeeding 20 years as a net operating loss deduction. (IRC § 172.) If the spouses filed a joint tax return for each year involved in figuring NOL carrybacks and carryforwards, the NOL is treated as a joint NOL. (IRS Publ. 536, p. 10.) Each spouse may carryover to his or her separate return his or her share of the joint NOL. (Huckle v. Commissioner, T.C. Memo 1968-45.)

Capital Loss Carry Forwards

For individuals, losses from the sales or exchanges of capital assets are allowed only to the extent of gains from such sales or exchanges plus up to $3,000 of ordinary income ($1,500 if the return is married, filing separate). (IRC § 1211, subd. (b).) Any capital loss that could not be deducted in one year may be carried over for an unlimited time until fully used up. (Id.)

If separate returns are filed after a net loss was reported on a joint return, the carryover is allocated to each taxpayer based on their individual net long-term and short-term capital losses for the preceding taxable year. (IRC § 1212, subd. (b)(1); Treas. Reg. 1.1212-1(c).) If incurred in a community activity, the losses are split equally on separate returns. Therefore, each spouse may carry forward his or her half of the loss to postdissolution income. (See Regs. § 1.172-7; Rose v. Commr., TC Memo. 1973-207.)

Suspended Passive Activity Losses

A passive activity is generally any trade or business in which the taxpayer does not materially participate, including rental activity whether or not there is material participation (subject to special rules for real estate rental activities and real estate professionals). (IRC § 469.) As a general rule, losses from passive activities may only be deducted from income from passive activities, and not against other types of income such as wages, interest or dividends. (Id.)

If a passive activity loss exceeds passive activity income for the year, the loss is “suspended” indefinitely as a deduction from passive activity income in the next succeeding tax years. (Id.)

If the asset which generates the passive activity loss is divided in-kind, the suspended passive activity loss is divided equally between the parties along with the underlying asset. On the other hand, if the passive asset is transferred entirely to one spouse and there is a suspended passive loss associated with that asset, the transferor cannot deduct the accumulated loss but the transferee’s basis increases by the amount of the unused suspended loss pursuant to IRC § 469(j)(6)(A). (IRS Publ. 504, p. 19; IRS Publ. 925; but see Pvt. Ltr. Ruling, Tech. Adv. Mem. 9552001 (dealing with S corporations).)

Suspended Loss Carryforwards re Subchapter S Corporations

In a Subchapter S corporation, the taxable income or loss is passed-through to the shareholders. (IRC § 1366.) Losses which exceed the shareholder’s basis in stock and debt in the corporation are suspended and carried forward to the succeeding tax years. (IRC § 1366, subd. (d)(1) (aggregate amount of losses and deductions taken into account by a shareholder for any taxable year shall not exceed the sum of the adjusted basis of the shareholder’s stock in the S corporation and the shareholder’s adjusted basis of any indebtedness of the S corporation to the shareholder).)

When the stock in such a corporation is owned as community property and transferred or divided incident to divorce, the suspended loss carryforwards associated with the stock are transferred along with the stock on a pro rata basis based on the number of shares owned by each spouse during the tax year. (See IRC § 1367.) In an inkind division of the stock which was equally owned by the parties during marriage, each spouse will receive one-half of the suspended loss carryforward.

However, if the stock is awarded entirely to one spouse, the other spouse’s share of the suspended loss carryforward is not transferred to the other spouse. The carryforward is personal (having already passed-through to that spouse’s tax return when the loss was realized). (IRC § 1366, subd. (d)(2).)

The party receiving the stock will only have the benefit of his or her one-half share of the carryforward; the other half will be lost. It is not added to the basis in the stock, as the loss was disallowed in the year in which it occurred and carried forward. (Pvt. Ltr. Ruling, Tech. Adv. Mem. 9552001.) The spouse receives the transferor’s basis in the stock per IRC § 1041, which does not include the loss carryforward associated with the transferee’s stock. (See Taft, Tax Aspects of Divorce and Separation, § 5B.03[3][b].)

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What Happens If My Spouse Transfers Property to Someone Else Before Divorce is Filed?

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transfer of property divorce

Sometimes a spouse will transfer property, such as financial accounts, paid up life insurance policies, a business or real estate to an entity, person or irrevocable trust without the other spouse’s knowledge or consent during the marriage and prior to filing for divorce. These transactions are usually discovered once a Complaint for Divorce is filed and discovery is served. If this transfer was made for the purpose of hiding the asset from the marital claims of a spouse in divorce, then it can be set aside by the Court as a fraudulent conveyance under the Uniform Voidable Transaction Act (“UVTA”), O.C.G.A. Section 18-2-70. [Prior to July 1, 2015, fraudulent conveyances were governed by the Uniform Fraudulent Transfer Act (“UFTA”).]

O.C.G.A. Section 18-2-74(a) provides, “A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay, or defraud any creditor of the debtor...”

The first line of inquiry is whether a spouse is a creditor who has a claim. The UVTA defines a “creditor” in part as “a person who has a claim...” O.C.G.A. Section 18-2-7(4). A spouse is certainly a person with a claim in divorce. The UVTA further defines a “claim” as “a right to payment, whether or not the right is reduced to judgment, liquidated, un-liquidated, fixed, contingent, matured, un-matured, disputed, un-disputed, legal, equitable, secured, or unsecured.” O.C.G.A. Section 18-2-71(3). A spouse has a contingent un-matured claim prior to filing for divorce.

The party asserting the claim has to prove at trial that the other spouse funded or transferred assets with the intent of removing them from reach in any subsequent alimony or equitable division action to satisfy the requisites of the UVTA. The Court would have to find that the claimant spouse had a right to payment from the party’s earnings and assets as equitable division, alimony, or child support. The spouse would assert rights upon filing for divorce as a creditor to void prior transfers of assets intended to deprive that party of rights in equitable division, alimony, and/or child support.

As of the date of this article, there is no published opinion in Georgia speaking directly to this issue, although it would seem clear that Georgia is receptive to the idea of one spouse as a creditor of the other vis-à-vis fraudulent transfer claims. See Harrison v. Harrison, 228 Ga. 126, 184 S.E. 2d 147 (1971); Armour v. Holcombe, 228 Ga. 50, 52(1), 701 SE 2d 169 (2010), and Speed v. Speed, 263 Ga. 166, 430 SE 2d 348 (1993).

While no published Georgia appellate decision has definitively defined whether a divorce and alimony action has to be “prospective,” “imminent,” or “in contemplation of divorce” to invoke the act, the plain language of the UVTA would seem to suggest instead that the focus should be on the state of the parties’ relationship at the time of the transfer of assets, rather than on the time lapsing between the transfers and the filing for divorce. Many couples live in loveless states of sexual abstinence in fractured marriages for years before one party files for divorce. Fraudulent conveyances become a financial hedge against the inevitable.

A cause of action asserting a fraudulent conveyance, however, has to be brought “within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonable have been discovered by the claimant.” O.C.G.A. Section 18-2-79(1). The statute of limitations expressly runs from the date the transfer was made, so you have to look at each alleged fraudulent conveyance separately. Each funding event has to occur within four years of the claimant’s asserted cause of action for fraudulent transfer unless the claimant spouse could reasonably have discovered the transfer of assets at an earlier date, and if so, what earlier date, and then the fraudulent transfer claim has to be brought within one year of that date. Because of this statute of limitations, the imposition of another time standard such as whether divorce was “prospective, “ “imminent,” or “in contemplation of divorce” imposes a standard to divorce cases which has no statutory basis.

There are eleven badges of fraud, and all eleven do not need to be proven to establish actual intent to defraud. They are as follows:

  • The transfer or obligation was to an insider;
  • The debtor retained possession or control of the property transferred after the transfer;
  • The transfer or obligation was disclosed or concealed;
  • Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
  • The transfer was of substantially all the debtor's assets;
  • The debtor absconded;
  • The debtor removed or concealed assets;
  • The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
  • The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
  • The transfer occurred shortly before or shortly after a substantial debt was incurred; and
  • The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

O.C.G.A. Section 18-2-74(b).

As an example of the application of the badges of fraud to show actual intent to defraud, a spouse who places assets into an irrevocable trust during the marriage, naming a family member as trustee and failing to tell his spouse about the transfer, having been threatened by the spouse with divorce prior to the transfer, concealing the existence until after the filing for divorce, and receiving nothing in value for the transfer, would satisfy six of the eleven badges of fraud. O.C.G.A. Section18-2-74(b)(1)(2)(3)(4)(7) and (8).

As a matter of procedure, the trustee of a trust or third party to whom property has been transferred should be joined as a party to the divorce litigation so that the Court has authority to Order the transfer of marital property back to the marital estate for equitable division in the event the Court finds there was a violation of the UVTA. O.C.G.A. Section 18-2-77(a)(b).

In summary, in order to rule on a fraudulent transfer claim, the Court must answer 1) whether the spouse is a creditor of the other within the meaning of the UVTA, 2) whether the transfer of assets was done with actual intent to hinder, delay or defraud the spouse, and 3) whether the spouse is asserting the fraudulent transfer claim within the applicable statute of limitations. To afford the Court the ability to provide complete relief, a joinder of third parties to the divorce is necessary.

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Transfer of Property in Divorce: Will I be Taxed?

Transfer of Property in Divorce: Will I be Taxed?

During divorce settlement discussions, spouses can be very creative in their agreements to divide assets and debts. Spouses may consider an equal or unequal division of community property, the transfer of separate property assets from one spouse to another, payments to the other to “equalize” the division of assets and debts, and may have to deal with how to manage nonvested and vested stock options, gains on the sale of real property, net operating losses of businesses, and many other issues. Each spouse should be informed of possible tax issues related to the assets being divided, and whether their agreements will impact their tax liability now and in the future. The purpose of this article is to provide a primer on “nontaxable events” related to property division agreements between spouses finalizing their dissolution of marriage. 

Nontaxable Events

To most parties’ great relief, the bulk of most property-division agreements falls under the umbrella of transfers “incident to divorce.”

Specifically, “gain” or “loss” is not recognized upon a property transfer (including money) between spouses if the transfer is incident to divorce. In plain English, the transfer does not create a taxable event and neither spouse will be taxed.

In most cases, marital settlement agreements often result in the unequal division of community property, giving one spouse a bit more, or a lot more, than one-half of the community interest. In return, the spouse receiving more may pay an “equalizing” payment to the other to balance the scales. Are these agreements considered to be transferred “incident to divorce?” 

Transfers “Incident to Divorce”

In most cases, the answer to the above question is “yes,” but there are important caveats.

A transfer is “incident to divorce” if it (1) occurs within one year after the date the marriage ceases, or (2) “is related to the cessation of the marriage.”

  • A property transfer between former spouses that occurs within one year after entry of final judgment of dissolution is an “incident to divorce” even if it was not related to the cessation of marriage, and even if the property was not acquired by the transferor until after the divorce.
  • A transfer is “related to the cessation of marriage” if it is made pursuant to a “divorce or separation instrument” and it occurs not more than six years after the date upon which the judgment of dissolution is final. 

The timelines provide both advantages and disadvantages to divorced spouses which should be considered with both your divorce attorney and tax professionals prior to entering into a marital settlement agreement, within the year following entry of final judgment, and prior to the six years after cessation of marriage if specific transfers have not yet been completed. 

Taxes Concerns Unrelated to the Transfer

Although spouses obtain relief from the Internal Revenue Code in relation to gains and losses involved in the transfer of property “incident to divorce,” they should still be wary of tax consequences related to the assets received unrelated to the transfer. 

On a positive note, under current law , if a residence is transferred to a spouse in property settlement agreements, the transfer will not be considered a “change of ownership” triggering a reappraisal for property tax purposes under California law. This saves the spouse receiving the property from the possibility of owing more in annual property tax payments. 

On a more concerning note for spouses, requiring further investigation and intuitive negotiation in the settlement, each spouse should be aware of differing “bases” of the property received by each of them, potentially creating unequal tax consequences. Otherwise, you may think you’ve received an “equal and fair deal,” while ultimately acquiring more tax liability than your spouse. Again, this is a must-have discussion with your family law attorney and tax professionals because the complexities are beyond the scope of this article. 

Each couple has differing assets and debts that make up their marital estate and those assets may come with their own tax consequences. Stock options, real estate sales, and business net operating losses are some of the most common items involving tax-centric concerns. It is important to educate yourself on the tax-related issues concerning your assets and debts before blindly agreeing to a specific division of those property items. 

It is important to know your rights, responsibilities, and options regarding tax issues incident to divorce or legal separation. Our family law team at Naimish & Lewis can advise you on this and other family law matters. To schedule an initial consultation with an attorney at our firm, please contact us.

Robert J. Allison, Esq.

Point Loma Location 3065 Rosecrans Place, Suite 100, San Diego, CA 92110

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Transfer Of Property Ownership After Divorce

Table of contents.

Property is normally the single most significant asset in a marriage and, therefore, it is at the core of most financial settlements in a divorce.

Often during the transfer of property ownership after divorce, the matrimonial home is sold and the proceeds are divided between the two parties.

But sometimes the property is transferred so that one spouse becomes the sole owner – the way you decide to divide the property you own is up to you and should be looked at as part of the overall divorce settlement you reach.

There is no one-fits-all answer, but for the purpose of this article, we’ll be walking you through everything you need to know about property law concerning the t ransfer of equity process after divorce  and the potential tax implications.

Property settlement agreement after divorce

A property settlement agreement after divorce is part of the financial settlement reached between a divorcing couple that relates to property that needs to be separated.

In most marriages, the property that needs to be separated is the matrimonial home (the main residence where they lived during the marriage), but it can also include second homes or investment properties which are either jointly or individually owned.

Once a divorcing couple has agreed on what to do with their assets within a property settlement agreement it is then wise to record the details in a   consent order . This is a legal document, usually prepared by a solicitor, setting out what both parties have agreed.

The consent order is normally presented to the court to make it legally binding when the divorce reaches the ‘Decree Nisi’ stage. The consent order then becomes legally binding on both parties once the Decree Absolute has been granted.

Obtaining a consent order is the only way to finally sever your financial obligations after a divorce, providing financial certainty for both parties by ensuring any future claims are dismissed.

Can my ex-spouse sign the house over to me?

Yes – if the matrimonial home is mortgage-free, it may be transferred between either divorcing parties as part of the overall financial settlement .  What this essentially entails is removing the name of one ex-spouse from the property deeds, leaving the other party as sole owner.

If there is still a mortgage on the property, it will be necessary to ask permission from the mortgage provider, and financial ability to pay the whole mortgage will be taken into account.

Normally the divorcing couple will agree to a property transfer as part of the divorce settlement, following negotiation and possibly mediation. Read  advice on divorce and property  to find out more.

On occasion, a court may decide to make a ‘transfer of property order’ which imposes a court decision regarding property transfer.  However, this type of order is quite rare and will normally only be intended to protect the interests of any children under the age of 18.

Removing a name from the land registry

A transfer of equity solicitor can draw up a title deed transfer that effectively transfers the property to one of the divorcing parties and removes the name of the other ex-spouse from the deeds.

Alternatively, this can be done directly with the Land Registry, which involves removing a name from the land registry using the following process:

  • An application must be made to change the register using  form AP1 .
  • If transferring the entire property,  form TR1  (Transfer of Whole of Registered Title) must be filed with the Land Registry. 
  • If a conveyancer is not handling the transfer,  form ID1  should also be filed along with the application.

Did you know?

The division of property during a divorce can be complex. Who gets the house is often the first question divorcing couples ask. But, outside of this question, you need to know how a house can be divided in a divorce. Legal advice is always recommended as family law solicitors know the law and can advise on issues such as property owned before marriage and how that is treated.

Transferring ownership of a house with mortgage

If a property still has a mortgage, permission will need to be sought from the mortgage lender before ownership of the house can be transferred.

In this case, the mortgage company will assess the ability of the ex-spouse who wishes to take on the entire mortgage, subject to certain affordability criteria.

Any property intended to be transferred as part of a divorce settlement should be transferred as soon as possible in order to avoid potential tax implications (see below).

Transfer property to spouse capital gains tax

There is usually no CGT on transfer property to spouse (Capital Gains Tax) where the principal matrimonial residence is being transferred; these are treated as being made on a ‘no gain, no loss’ basis for CGT purposes as long as transfers are completed before the end of the tax year of separation.

What counts as ‘marriage separation’ can be subject to interpretation,  but  government guidance  refers to circumstances where  “the marriage separation is likely to be permanent ”.

Separately,  Principal Private Residence (PPR) relief  can normally be claimed for a certain period of time.

If one party moves out and transfers the home to their ex-spouse, the party moving out can only claim relief from CGT if the transfer is agreed upon within a period of 9 months after moving out.

Transfer property to spouse stamp duty

If the property is being transferred as part of a divorce settlement, there is no Stamp Duty Land Tax (SDLT) to pay.

It is also important to note that transfers which take place  after  the decree absolute may potentially be subject to inheritance tax (IHT) if the transferring spouse dies within seven years of the transfer.

Transfer of equity legal considerations

A transfer of equity, or transfer of property ownership, will generally form part of the overall financial settlement.

On its own, a financial settlement just outlines the terms of the agreement between the divorcing parties and is not legally enforceable (although it can be used as evidence in court) .

From a property law perspective, to give a financial settlement legal standing, a consent order is required – this will allow any agreement regarding property transfer and other assets to be enforced in the courts.

A financial consent order also prevents one party from making financial claims on their former spouse at some point in the future, providing a clean break.

Managed Clean Break Consent Order Service – £449

This Clean Break Consent Order service will help you legally split any properties you own, whether that is solely or jointly. Using solicitors to obtain this type of agreement will often cost over £1500 + VAT.

Consent Order Service – £449

Property agreement to secure your finances, related articles, rights to property if my name isn’t on the mortgage.

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transfer of property divorce

Money and property when you divorce or separate

Tax when transferring assets.

You do not usually have to pay Capital Gains Tax if you give, or otherwise ‘dispose of’, assets to your husband, wife or civil partner before you finalise the divorce or civil partnership.

Assets include shares and investments , certain personal possessions and property . You usually do not have to pay tax if you transfer or sell your main home .

If you transfer an asset when you’re separated

If you lived together at any point in the tax year that you transferred the asset, the normal rules for spouses and civil partners apply.

Otherwise you may have to pay Capital Gains Tax. You’ll need to get a valuation of the asset on the date of transfer, and use it to work out the gain or loss .

The tax year is from 6 April to 5 April the following year.

If you transfer an asset after you’ve divorced or ended your civil partnership

You may have to pay Capital Gains Tax on assets you transfer after your relationship has legally ended.

The rules for working out your gain or loss are complex. Contact HM Revenue and Customs ( HMRC ) or get professional tax help , such as an accountant or tax adviser. You’ll need to tell them the date of:

  • the final order or decree absolute if you’re divorced
  • the final order if you have ended a civil partnership
  • any court order, if assets were transferred this way
  • any other contract showing the transfer of assets

Part of Get a divorce: step by step

Step 1 : get support and advice.

You can get support or counselling to help you through the divorce process.

  • Get support and advice from Relate
  • Find a counsellor on Counselling Directory

Step 2 : Check if you can get divorced

  • Check if you can get a divorce
  • Get legal advice if you want help with the divorce process

Step 3 : Make arrangements for children, money and property

  • Make arrangements for your children
  • Divide your money and property
  • Check if your divorce will affect whether you can live in your current home

Step 4 : Apply for a divorce

  • Apply for a divorce online or by post £593
  • Get help with court fees
  • Get legal advice
  • Get help if your husband or wife can't make decisions for themselves

Step 5 : Apply for a ‘conditional order’ or ‘decree nisi’

  • Apply for a ‘conditional order’ or 'decree nisi'

Step 6 : Finalise your divorce

  • Apply for a ‘final order’ or 'decree absolute'

Step 7 : Report that your circumstances have changed

You also have to tell other government organisations that you're getting divorced if:

  • you get benefits
  • your visa is based on your marriage

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transfer of property divorce

Transfer between Moscow airports

There are four airports in Moscow: Sheremetyevo, Domodedovo, Vnukovo and Zhukovsky. They are located in four different and distanced ends of the city. The airports are distanced not only from each other but from the city center as well. Therefore, the problem of getting quick and cheap transport to travel between airports is predominant. You should know two main means of transport to get from one airport to another or to the city center.

If your transfer in Moscow is between two airports, you should obtain Russian visa .

Transfer during the day (2 to 3 hours)

Aeroexpress train in Sheremetyevo

Three of four airports (Sheremetyevo, Domodedovo and Vnukovo) are connected to the city centre with Aeroexpress trains. Travel time to rail terminals is from 35 to 55 minutes. Both Aeroexpress and Moscow Metro work from 05:30 AM to 01:00 AM. Free Wi-Fi is available both inside the Aeroexpress train and in the Metro. To travel between Aeroexpress terminals you need to choose circle line (brown). All three terminals are connected with that line. Journey takes about 15 minutes.

You may also want to use a taxi between Aeroexpress terminals. All three Rail Terminals situated in the city center and the Garden Ring road ties them together, so traveling between most often should take no more than 20 minutes.

Transfer at night (1 hour)

Mostaxi car

Driving between airports takes nearly 1 hour at night. You may ask the driver to go through the city centre. The journey will take a little longer, but it’s a worth thing since Moscow looks stunning at night.

Taxi between airports costs about 2300 rub. (€22.94). If you finally decided to take a taxi, you should avoid touts operating in front of every arrival terminal. Better book or even prebook a car from the official taxi company listed here . Free Wi-Fi in alsmost every official taxi car.

Moscow Airports and Aeroexpress Terminals Locations

Please note that euro prices next to rouble ones in our guide are always based on today's rates.

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Transfers to and from Domodedovo International Airport

Enjoy an airport transfer with SIXT ride - whether you are flying in or out of Moscow Domodedovo Airport. By booking a private transfer to or from the airport you can enjoy many benefits, such as:

  • Transparent, fixed prices for all airport transfers
  • Pickup inside the terminal at Domodedovo Airport
  • Flight tracking and adaptable pickup time
  • 24-hour availability to and from the airport in Moscow
  • Up to 60 minutes free waiting time depending on car class

Pickup at Domodedovo Airport

The SIXT ride airport transfer service offers one of the more convenient ways of travelling into the city centre once you have arrived at Moscow’s second largest airport. Your driver will be waiting for you inside the terminal building as you arrive, ready to help you with your luggage and show you straight to your car. You won’t have to find a taxi at the airport or wait in any queues and can simply get your ride to your hotel in Moscow underway as soon as possible.

By entering your flight number when you book a transfer from Moscow Domodedovo, you will allow your driver to track your flight. This means that they will be able to see if there are any delays to your flight and then adjust the pickup time accordingly. So you can be sure your driver is waiting for you when you arrive in Moscow and won’t have to pay extra for delays you can’t control.

Moscow city centre to Domodedovo

Whether you are in Moscow on business or on holiday, we will be there to get you to the airport at the end of your stay. You’ll be picked up straight from your hotel or anywhere else in the city centre and dropped off at the terminal at Domodedovo.

For your ride to the airport you have a number of options to choose between which cover a range of budgets. We also have van and minibus booking classes for those travelling in a larger group or with lots of luggage. To see all of the choices and their respective prices in Moscow, simply fill in the booking form at the top of the page or on the SIXT app. The prices shown are fixed and so, unlike with a regular taxi in Moscow, you will know the exact fare of your transfer to Domodedovo before you finalise your booking.

SIXT services

transfer of property divorce

Sheremetyevo

IMAGES

  1. 3 Ways to Handle Property Transfer After a Divorce

    transfer of property divorce

  2. Quiz & Worksheet

    transfer of property divorce

  3. Divorce Property Settlement Financial Agreement 90D

    transfer of property divorce

  4. What Do Divorce Papers Look Like Form

    transfer of property divorce

  5. Using a Quitclaim Deed to Transfer Real Estate in a Divorce

    transfer of property divorce

  6. Separation and Property Settlement Agreements

    transfer of property divorce

VIDEO

  1. TRANSFER OF PROPERTY ACT SECTION 5,6,7@VithivilakagaThigazh18

  2. Transfer property Act class 1 immovable property Defination #llb #property#law student

  3. Divorce Case By Husband

  4. Can I file for a #divorce via an online service #diydivorce

COMMENTS

  1. Tax Implications of Property Transfers During a Divorce

    Per the IRS, spouses and ex-spouses can transfer property to each other as part of a divorcee agreement without having to recognize gains or losses on the transaction. This allows the parties to divide property fairly without having to take a hit on their taxes the following year.

  2. Transferring House Title Between Spouses During Divorce

    If transferring before a divorce, the spouse will need to hold title as "married man/woman as their sole and separate property." If transferring title after divorce, the spouse can hold the title as "Unmarried man/woman." Once you have decided how the property is to be divided, you'll need to create a new deed to transfer the property.

  3. Interspousal Transfer Deeds, Quitclaim Deeds, and Divorce

    A deed is a written document that legally transfers property from one person or entity to another. In some states and counties, a deed that is used to transfer property between spouses is called an "interspousal transfer deed" (ITD).

  4. How to Avoid Paying Taxes on a Divorce Settlement

    In all ordinary cases, spouses do not owe any taxes for property transfers due to a divorce. This is controlled by two sections of the law: U.S. Code Section 1041 (a) and U.S. Code Section 2516. Under Section 1041 (a), the IRS doesn't require taxes when property transfers between former spouses if that transfer occurs "incident to the divorce."

  5. Property Transfers in Divorce: Transferring House Titles

    Property Transfers in Divorce: Transferring House Titles Finalizing a divorce takes time. Even once the parties have agreed on all relevant matters-division of property, alimony, child custody, child support-there are additional steps to take.

  6. How to Transfer Your Property After Divorce?

    26 Jun Written By Benaters Key Takeaways: Post-divorce property transfer demands legal and procedural considerations. Steps include valuation, agreement drafting, and court approval. Professional guidance from a conveyancer ensures a smooth transfer, navigating complexities and safeguarding interests.

  7. Tax-Free Transfers Incident to a Divorce

    Internal Revenue Code Section 1041 lays out the rules for property that is transferred between spouses who are divorcing or are divorced. It provides that a property transfer is incident to the divorce if it occurs within one year of the divorce, or if it is related to the cessation of the marriage.

  8. Dividing up assets when a marriage ends: Tax implications

    Regs. Sec. 1.1041-1T indicates that the transferor of property under Sec. 1041 must provide the transferee with sufficient records to determine the cost basis, holding period, and other tax information relating to the property at the time of the transfer.

  9. 26 U.S. Code § 1041

    (1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and (2) the basis of the transferee in the property shall be the adjusted basis of the transferor. (c) Incident to divorce For purposes of subsection (a) (2), a transfer of property is incident to the divorce if such transfer— (1)

  10. Publication 504 (2023), Divorced or Separated Individuals

    Table 1. Itemized Deductions on Separate Returns Dividing itemized deductions. Separate returns may give you a higher tax. Joint return after separate returns. Separate returns after joint return. Exception. Head of Household

  11. Handling Money and Property Before Divorce Is Legally Granted

    Once divorce papers are filed, a spouse should notify their bank and any other relevant institution of the court order preventing each spouse from taking or transferring money or property without permission. Each spouse owes the other a fiduciary duty to not harm the other's property (including the other spouse's portion of joint property).

  12. Tax considerations when dividing property in divorce

    A transfer of property by one spouse during a period of marital strife, whether or not divorce is imminent, might not be considered made unconditionally and is subject to additional scrutiny. All states give each spouse certain legal rights to share in the family's assets if there is a divorce, but the scope of those rights varies ...

  13. Divorced? How to change names on a house deed

    To transfer ownership of your property, first visit your county recorder's office to request: A quitclaim deed form. You'll enter the date, the value of your home for consideration and a legal description and location of your property. A Preliminary Change of Ownership form. The spouse who is intending to keep the home completes this form.

  14. 26 CFR § 1.1041-1T

    Q-7: When is a transfer of property related to the cessation of the marriage?. A-7: A transfer of property is treated as related to the cessation of the marriage if the transfer is pursuant to a divorce or separation instrument, as defined in section 71(b)(2), and the transfer occurs not more than 6 years after the date on which the marriage ceases.

  15. Tax Issues When Dividing Property in Divorce

    Internal Revenue Code section 1041 provides that a transfer between spouses, or former spouses, "incident to divorce" is not taxable in most circumstances. The transfer is treated like a gift. The transferee takes the transferor's tax basis in the property. The effect of the rule is to defer the tax consequences (recognition of gain or loss) until the transferee disposes ...

  16. What Happens If My Spouse Transfers Property to Someone Else Before

    Sometimes a spouse will transfer property, such as financial accounts, paid up life insurance policies, a business or real estate to an entity, person or irrevocable trust without the other spouse's knowledge or consent during the marriage and prior to filing for divorce.

  17. Transfer of Property in Divorce: Will I be Taxed?

    A property transfer between former spouses that occurs within one year after entry of final judgment of dissolution is an "incident to divorce" even if it was not related to the cessation of marriage, and even if the property was not acquired by the transferor until after the divorce. A transfer is "related to the cessation of marriage ...

  18. Transfer Of Property Ownership After Divorce

    Last Updated: February 23rd 2023 Table Of Contents Details on the implications and rights for spouses when it comes to transferring property ownership after a divorce.

  19. Money and property when you divorce or separate

    If you transfer an asset after you've divorced or ended your civil partnership You may have to pay Capital Gains Tax on assets you transfer after your relationship has legally ended. The rules...

  20. Transfer between Moscow airports

    Transfer at night (1 hour) Moscow Taxi. Driving between airports takes nearly 1 hour at night. You may ask the driver to go through the city centre. The journey will take a little longer, but it's a worth thing since Moscow looks stunning at night. Taxi between airports costs about 2300 rub. (€31.53).

  21. Maxim Anatolievich POLYAKOV

    Biography: Maxim A. Polyakov has been successfully practicing Russian law since 2001. Maxim A. Polyakov is a Member of Moscow based Law Bureau #25 Inter-regional collegiums of advocates and a Member of Moscow Advocatory Chamber, registration number 77/4508. Maxim A. Polyakov received his law degree from the Moscow State Law Academy (former All-Union Correspondence Law Institute) in 1996.

  22. Moscow Domodedovo Airport Transfers (DME)

    Enjoy an airport transfer with SIXT ride - whether you are flying in or out of Moscow Domodedovo Airport. By booking a private transfer to or from the airport you can enjoy many benefits, such as: Transparent, fixed prices for all airport transfers. Pickup inside the terminal at Domodedovo Airport. Flight tracking and adaptable pickup time.

  23. Transfer help SVO to Moscow city

    Russia - Transfer help SVO to Moscow city - There is a new train from SVO to town - but little information on how to use it, where it is in the airport (or not), and whether / how to book tickets in advance. Main question: does this beat using taxis to get to a hotel? (If not, any recommendations on taxis or taxi