The scenario plays out like this – husband and wife have been married for X number of years and have accumulated assets together. As part of the accumulated assets there is a marital house which is titled in both spouses names, two vehicles titled in both names, and a retirement account titled in the husband’s name.
At mediation the husband and wife negotiate a full settlement. As part of the settlement the wife will quit claim deed the house over to the husband and the husband will QDRO $75,000.00 out of his retirement account in order to transfer to the wife.
As the mediation session winds down, the mediator is drafting the final agreement and both spouses and their attorneys are prepared to wrap things up for the day. As the wrapping up process begins, the husband leans over in his chair and whispers to his attorney ‘hey Mr. Attorney, am I going to have to pay taxes on the house?’ The wife who is sitting on the other side of the conference table with her attorney overhears this and promptly asks her attorney the same question about the retirement account money she is about to receive. A round table discussion about tax liability quickly ensues.
As a general rule of thumb, property transferred between spouses as part of divorce settlement is treated for tax purposes as being a ‘gift’. That means that the neither the transferring spouse nor the receiving spouse will have to pay income tax on the transferred property (of course there are some exceptions to the general rule).
My advice is that you consult with your divorce attorney and a tax professional before committing to a final divorce settlement.