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My ex and I (bifurcated divorce) want to create an agreement that allows for a interspousal tansfer of a property at a later date with exchange of money at that time (when it is logistically possible) as part of the settlement to avoid taxes. Is there a time limit for such a transfer? Does the time limit need to be spelled out in the agreement? Does the compensation amount need to be fixed for this to be considered part of the settlement? We live in California and have two homes both as JTRS. The agreement would call for one (free and clear) to be transferred immediately to my ex and the other which has an encumbrance in both names would initially be transferred to me (if that is possible with encumbrance) and later transferred to my ex when feasible.

Jason1

In Caliornia I believe it would need a date to be considered legitimate, also you would need a price for which it would transfer. I'm unclear on what you are trying to avoid. Have you consulted tax and legal professionals? You will just be separating assets, not liquidating the real estate, is this correct?

Best regards,

jenkin7 · Posted: Tue Mar 03, 2009 1:24 am Post subject:

Hi Guest,

You need to spell out the compensation amount on the agreement. As far as the time limit for such a transfer is concerned, I'm not quite sure about it. I believe the lawyer you are consulting regarding the divorce can give you the proper answer to this query.

Guest

@Jason1:

Thank you for your reply. I apologize for the confusing post. I have consulted legal and tax professionals but did not a clear "big picture" and decided to post on this site to get a view from the real estate perspective. I am glad that I did so.

The original intent was for my ex-wife to retain both properties but she was unable to raise the compensation to do that. The current plan is for us to each retain a property initially. After needed improvements, she would then sell her property and have the cash to compensate me for the property I am initially retaining.

We are attempting to make all of this part of the settlement agreement to avoid a formal sale post-settlement with all of the complications including capital gains tax exposure on my part.

When you state that a date is required, is that an "execution on" date or a "execution by" date?

@jenkin7:

Thank you for your reply. Both of you have stated that the price must be fixed and with regard to the time limit, I am seeking further clarification in this forum to assist me in my dealings with my attorney.

Guest

I own a property and would like to give it to my niece, would this transfer be subject to transfer taxes in Pennsylvania?

Guest

Donna- you should ask your question to the forum not post your question as a reply here in this thread. You may never get the attention your question deserves if it is buried here. It is also considered hijacking this thread.

Jason1 · Posted: Tue Mar 03, 2009 8:38 pm Post subject:

Thanks for pointing that out to Donna, it's very sound advice. Being from a different state one would want that highlighted in a separate thread.

As for the 'dates' question, it will need an execution date and also should have the date in which the agreement was entered. As for the cap gains tax, will you realize more than a $250,000 gain on the property ($500k per couple)? Again, good questions for a CPA but if the property was owned and occupied for 2 out of the past five years you should have a pretty decent buffer for gain. Also, the reason why the separation of assets would be a good question for someone in the legal profession is that I'm not sure why there would be taxation incurred on real estate prior to selling and realizing the gain. In California you shouldn't even incur reassessment for this type of transfer as it's from spouse to spouse. I'm assuming you're still legally married due to the fact you are still in the process of separating assets.

Well, the more I think about it, the more I would encourage you to get some specialized advice. Spending a few hundred dollars for an hour of a real estate attorney's time may be money very well spent.

Best regards,

Guest

Thank you Jason for taking the time to offer your advice.

Setting a fixed execution date may be problematic as it is possible that she may not be able to follow through by that date or we may be able to execute before that date which would be desirable. Ideally there would be a range as in from the time of the agreement until 6 months hence or something similar.

I may realize more than the $250k exemption depending on how the basis, improvements and other considerations apply. I consulted a CPA that indicated that I probably would not be liable for significant capital gains exposure. If I put it on the market, I might realize a greater gain, but I actually prefer to pass it along to her for several reasons - not all of which make the most sense from a personal profit standpoint.

You are correct that there would not be any taxation prior to selling and realizing the gain - that is the purpose of attempting a delayed spousal transfer (it is a bit confusing as initially we would each take a house, but the intent is that eventually my house would transfer to her after sale of her house which is currently being improved).

Our dissolution was bifurcated; we are divorced in terms of marital status, but the settlement has yet to occur - a "Judgement on Reserved Issues" is to be filed in court.

If I do not have a sense of confidence after consulting my tax accountant and my divorce lawyer, perhaps I should consult a real estate attorney. Unfortunately, time is of the essence and I will need to do so in quick order.

Thank you again Jason,

John

Guest

Jason,

Upon reflection, perhaps you have cut to the heart of the matter. It may not be worth the complication to construct this delayed transfer mechanism and instead actually sell the house to her (FSBO of course). The only downside is that even if I am not technically liable for significant capital gains tax, I may have to demonstrate this. My tax attorney did suggest that there is little scrutiny in these matters if the selling price is not too high, but it seemed a bit cavalier for my taste.

Any additional comments are most welcome.

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Please advise! Attempting creative property transfer...