Is Gift tax return 709 required for transactions during divorce?

[jackkgan]

My spouse and I expect a mutual consent divorce (mostly and as of now).
We co-own the house we live in which we would like to transfer to our only adult son (25 year old) as part of the divorce separation agreement. I request your advice on the best way to handle this with least tax consequences and complications to our son and overselves.

Some options/questions that come to my mind are as below, though there may be a better way to do this.

1) Should we do it as a 2 step process where one of us gives away their half to the other spouse, and then that person transfers it?

2) Can we do it as a 1-step process where we both write off the house to our son?

3) How to transfer the house to our son? Should we first put it in a trust or can we just go to the title company and make this transfer?

4) Should we transfer to our son before or after or during the divorce?

5) Which options would require submitting 709 gift tax return form?

6) I have been submitting 709 for cash support (not split) to our son until this year. Will the IRS get confused if we submit a new gift transfer together split for this house? We live in community property state (CA).

I am not sure what's the best way to go about and would be grateful for any suggestions. Thank you!

[RobertB4444]

Each individual has to file their own gift tax return.  So you and your spouse should each file one gifting half of the value of the house to your son.  

Some of this gets into legal advice areas and we absolutely don't do that here.  So, for tax purposes, it doesn't make any difference whether you gift it to your son before or after the divorce or to a trust or to him directly.  Whether it makes a difference for your divorce at all is a question for your attorneys.

As I said, you will each submit a form 709 individually - there isn't a married filing joint version - to show these gifts.  If the form is filled out correctly it shouldn't confuse anyone.

@jackkgan 

[Hi Palms]

You need to consult with local legal counsel and/or a tax pro in California.

Right out of the box and off the hip, as long as you two own the property, you could convey the property to your son and each of you would then file your own 709. 

[Mike9241 · Accepted solution]

property settlements pursuant to a divorce do not require filing a gift tax return. Sec. 2516 applies only to payments and transfers made pursuant to a written agreement that resolves the divorcing spouses’ marital and property rights or provides for the support of minor children. Sec. 2516 provides that the transfers will be deemed to be made for full and adequate consideration, which negates the gift.

1) Should we do it as a 2 step process where one of us gives away their half to the other spouse?

the divorce decree will specify what is to happen to the house.  this may require nothing more than the spouse that is losing their ownership interest taking their name off the title. However, the spouse that may no longer own the house will still be liable for any debt secured by the property. 

2) Can we do it as a 1-step process where we both write off the house to our son?

I suppose both of you can gift the house to your son before the divorce is final but that would constitute a gift (so would gifting after the divorce but then only the owner would be making the gift) requiring a gift tax return. there would also be issues if there is a mortgage or other debt secured by the property. many have a due on sale clause and gifting under state law may be deemed a sale making the entire balance due

3) How to transfer the house to our son? Should we first put it in a trust or can we just go to the title company and make this transfer?

4) Should we transfer to our son before or after or during the divorce?

5) I have been submitting 709 for cash support (not split) to our son 

not knowing anything about your son, I can't say that filing a gift tax return is needed for providing support since that may be a parental obligation removing it from the definition of a gift

it would seem that you are not using and have not consulted a lawyer in these matters. doing so would be advisable. they can dig in the details they believe are necessary to give proper advice based on state and federal laws