Divorce and real estate taxes
June 13, 2017 7:03 AM   Subscribe

We are getting a divorce, "amicably". We are not going through lawyers. We agree on all the asset splits which really boil down to: she keeps the residence, I keep the investment home (these properties have about the same amount of equity in them), I will sell the investment property to a) pay her off for 1/2 of my pension (which is not, and can not be made liquid) and b) possibly finance a down payment on a new home for me. How best to structure this so as to limit my/our tax liabilities?

We are in contract to sell the investment house. We have not filed for divorce but the forms are filled out and ready to go. We might be willing to wait to file until the house sells. Does that help? I understand there is possibly a one-time "here's divorce settlement money" thing that can be done that might make some of those proceeds tax free. Is that true? What's that called?

The "investment" property was last lived in by us 4 years ago.

Yes, I am getting an accountant. But I'd like to be versed in what I am even asking them about. This is in Texas, and if you have suggestions for a specific CPA in the greater Austin area I'd love to hear that too.
posted by anonymous to Grab Bag (14 answers total)
 
I am not a lawyer, but, I think that you're still going to need one.
posted by Hanuman1960 at 7:23 AM on June 13, 2017 [9 favorites]


I think the thing you're asking about is a qualified domestic relations order, which deals with retirement and pension plans in divorce; it's how you liquidate to split things without incurring taxes.

The real estate capital gains taxes are a different issue. My understanding is that you'll need to pay those taxes regardless of marital status. If you're going to sell that property no matter what, then you'll need to figure out how to split the tax liabilities.

However, if the purpose of selling is only to offset the pension splitting, you might want to not sell; the QDRO would help you deal with dividing the pension, and then you'd avoid the need to pay the capital gains tax (right now, anyway).

It sounds like you may need a lawyer, even if just to draft what you've already agreed on.
posted by Dashy at 7:47 AM on June 13, 2017 [5 favorites]


Even amicable divorces need lawyers - especially if you're dealing with complicated issues of home ownership and pensions. I'm already troubled by the fact that you are "in contract" to sell the second house. Who drafted the contract? Is it actually enforceable? What are the repercussions for breach?

There's a common preconception that only messy, malevolent divorces require lawyers, "and since we still like each other, it'll be fine!"

Hell no, it never is. Get a lawyer.
posted by ZaphodB at 7:52 AM on June 13, 2017 [8 favorites]


Maybe it's covered by details you are omitting, but the math doesn't work out here if the property equity values are equal as you say.
It looks like you end up with some fraction of a house, a tax bill and half a pension, she gets a whole house and half a pension.

I also don't know if you even have to give her half the pension rather than some amount of alimony which may be less, and may only be due for a limited number of years (and stops if she remarries). A lawyer would know.

You need a lawyer to tell you what you have to give up, and probably an accountant to total up the numbers so everybody end up square.

Know that many divorces start off amicably, but few end that way. A lot of people are overly generous in the settlement they agree to and regret it later.
posted by w0mbat at 8:12 AM on June 13, 2017 [9 favorites]


One question an accountant should be able to answer is whether any capital gains taxes would vary if you sold the investment property or other assets before or after the divorce. For example, if one person has significantly lower income, it might make sense for that person to take the property and then sell it after the divorce, when s/he would be subject to a lower tax rate.
posted by Mr.Know-it-some at 8:26 AM on June 13, 2017


If you and your spouse have multiple pensions and 401ks consider (after getting pro advice) rolling multiple 401ks held by a given party into one. My ex and I found that one of the slowest and most expensive parts of the QDRO process was getting QDROs for every damn retirement plan.

Also you are going to need a pro, possibly a lawyer, one that works for both of you is fine, but you're going to need someone to work through the options here. Your pension absolutely can be divided via QDRO liquid or not.
posted by zippy at 8:40 AM on June 13, 2017


My former wife and I had the world's most amicable divorce ("You take that, I know you like it." "No, YOU have it, it was from your aunt." etc). We still involved a lawyer (but only one). One of the things we needed her for was the QDRO.
posted by ubiquity at 9:09 AM on June 13, 2017 [7 favorites]


I'm not sure where you live or what your undisclosed circumstances are, but in my state we weren't allowed to complete a dissolution without an attorney, no matter how amicable. There were circumstances related to property and family that required more than just the two parties agreeing and filling out paperwork.
posted by late afternoon dreaming hotel at 9:14 AM on June 13, 2017


The general rule is that capital gains of up to 500k for a couple filing jointly from the sale of a home can be excluded from taxes provide the home has been used as a principal residence for 2 of the last 5 years. And the the 2 years don't have to be consecutive. That may not help with the investment home.
As for the pension, you definitely need a QDRO.
posted by jtexman1 at 9:23 AM on June 13, 2017 [1 favorite]


Yeah before you sell anything or agree to split anything in any weird way, you need to deal with the QDRO process. Your pension has to deal with those. You don't need to complicate the issue like this.
posted by Medieval Maven at 9:51 AM on June 13, 2017


In my state, we were each required to have a lawyer. It was really better that way. You need someone who isn't emotionally involved thinking on your behalf.
posted by FencingGal at 10:15 AM on June 13, 2017 [1 favorite]


Please don't take legal advice from the internet. At least run all this by an attorney -- $500 now can save you thousands if you do it wrong.
posted by freshwater at 11:42 AM on June 13, 2017


You may want to investigate Collaborative Divorce. It seems to be more like what you are hoping for - non-adversarial, and still answering the questions that are necessary to make sure everything is fair (as noted above).
posted by China Grover at 12:10 PM on June 13, 2017 [1 favorite]


As someone who has gotten divorced in Travis County without a lawyer, get a lawyer. It an still be amicable. I had no shared assets, but still regret not hiring an attorney.
posted by hrj at 1:25 PM on June 13, 2017 [1 favorite]


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