I.R.C. § 1041 provides that no gain or loss is recognized on a transfer of property from a spouse or a former spouse to a spouse or former spouse if the transfer is incident to a divorce.The parties cannot elect out of it. The section is applicable even if the spouse or former spouse pays consideration for the property by giving up rights, transferring other property, or paying cash.
I.R.C. § 1041 provides that a transfer is incident to a divorce if (1) it occurs no more than one year after the date on which the marriage ceases, or (2) the transfer is related to cessation of the marriage.
Because the tax basis is transferred from one spouse to the other spouse, built-in gain recognized by the transferee spouse upon the disposition of the property is also transferred.