Divorce Post House Sale

[ingajahn]

I have a question:  Background:  I am recently amicably divorced. We had our house on the market but due to the covid19 situation, have decided to cancel and spend time doing improvements to the house (like a new roof, etc.) while being roommates.  This is due to a variety of factors:

1) Vultures trying to buy a house in a great neighborhood at a low ball price.  Sorry, not giving house away.

2) Re-financing can lower our mortgage payments immensely and then we can use the money to put necessary improvements into the house during this time.

3) Finally, a house a block away from us in the market at $599.9K which is funny, as ours was on the market at $299.9K . But perhaps we do improvements and price more compatibly to 'hood post covid 19 (but we are looking to sell not make a profit).

OK, so upon realtor advice too, we cancelled the house sale for the time being to ride out the covid19 situation.  House was in both of our names, but I am agreeing to do a quit claim deed on the property and have my ex-husband solely on the property in name to re-finance the mortgage. Meanwhile, we have a legal paper written up with my divorce atty that I will get 50% of proceeds following sale (minus any money either of us puts in for renovations, probably him more than me as he makes a lot more than me) when we eventually sell (per atty, in our state, we have up to 5 years to sell from date of re-fi, but are hoping to do this within the next 6-24 mos depending on the outcome of covid19 situation). Next, we will be roommates, as we have been for a while now lol, and I will "rent" from him.

Issue:  So what is my question? It's this: upon house sale proceeds, can he just write me a check for the amount owed to me, or is there any tax implications?  We have sought advice from divorce and real estate attorney, and I am *assuming* (BUT never like to assume) that we can just write me a check to cash up to amount allowed as gift without tax penalty.  And if amount goes above this (for 2020, amount to gift is $15,000 per year without tax), he can write me a second check if we make more than that.  So, is that okay?  Thanks!!!  

[rjs · Accepted solution]

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@ingajahn wrote:

We have sought advice from divorce and real estate attorney . . .

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You need to consult a tax attorney. We see many, many cases here where divorce attorneys made serious mistakes about tax law. I wouldn't rely on the real estate attorney for tax advice either. You have a very unusual situation.

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@ingajahn wrote:

I am *assuming* (BUT never like to assume) that we can just write me a check to cash up to amount allowed as gift without tax penalty.  And if amount goes above this (for 2020, amount to gift is $15,000 per year without tax), he can write me a second check if we make more than that.  So, is that okay?

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No, that's not okay. It's not a gift if you have an agreement (essentially a contract) saying that he will pay you the money. Even if you don't put the agreement in writing, it's not a gift.

And don't assume anything. Get clear specific legal advice.

[Carl]

You both need to seek the services of a "tax" "attorney". Not a CPA, and not an EA. A "TAX" "ATTORNEY". What you have is not simple on the tax front, by any stretch of the imagination. For example, it matters if you live in a community property state or not. Additionally, it matters if the sale occurs before or after the divorce is fanalized. There are a "lot" of things that "matter". Seek the services of a tax attorney that is licensed to practice tax law in your state.

What makes this *REALLY* matter, is if your state taxes personal income.

[rjs]

Consult the tax attorney before you do anything with the deed. That could have tax implications, too. You don't want to make an expensive mistake. When I replied yesterday I was concentrating on answering your question about the payment after the sale, and I overlooked the fact that there's a significant earlier step involved.

You and your ex-husband might have to go to two different tax attorneys. One attorney might not be willing to advise both of you, since your interests are divergent. It might be a violation of professional ethics for one attorney to advise both of you. The attorney will tell you whether he or she can advise both of you.

[ingamljahn]

Hey thank you!  I will reach out to a tax attorney then, thanks! 

[ingamljahn]

Thx again for the three of you reaching out.  We are by the book, and yes, this is very unusual - being the Covid19 state of being the world is living now - so thanks, will call someone tomorrow.