I'm not a tax dodger, but...
May 25, 2019 10:19 AM Subscribe
What is the best way to get my proceeds from the sale of my ex-partner's house, when I no longer have a legal claim to that property? (Oregon)
Assume everyone involved is not looking to screw anyone else over
I know this isn’t the place to seek legal or tax advice, but just having an idea of where to start and who to talk to would be helpful. I apologize in advance if I’m providing too much extraneous detail, but I know there are a billion variables and I don’t want to leave anything out.
My former partner and I were together for 15 years and have two children together. We were never married, and when we separated, we never went through any kind of formal separation proceeding. We get along well, and care for each other as people, and we’ve (likely mistakenly) never believed there was any need to make anything super formal.
We bought a house in 2007; his was the name on the mortgage, but I was on the deed. We separated in 2014, and we agreed that we would split the proceeds of the sale of the house 60/40, with me taking the smaller share. He was not prepared to sell the house at that time, could not afford to buy me out of the house, and I would never force him out of the house, in the interest of keeping our relationship as amicable as possible.
In 2017 I was ready to buy my own house, but the type of loan I needed required that I couldn’t own any other property. So I filed a quitclaim to remove my name from the deed on the house that we co-owned.
My former partner is planning to sell the house in 2020, and we’re trying to figure out how to best prepare for the sale of this as well as make sure that I get my 40% while losing as little as possible to taxes (I am generally a big fan of taxes, but the systems in place to protect assets don’t really apply to this weird-ass situation, I don’t think).
Some ideas we’ve considered:
(a) File a new quitclaim to put me back on the deed before the sale of the property but…
- does that count as a gift?
- Will I still get the capital gains exemption since I haven’t lived in the house for 5 years?
(b) He “buys” part of my house with the proceeds (equaling 40% of the sale of the old property) but…
- At some point I’d want him off the deed and I’m not sure what the tax implications are there (is it a gift? When I removed myself from the deed of the other house, there were no tax implications afaik, but then again, no money changed hands).
- He will want to buy a new house, and I don’t think the capital gains exemption counts if you “buy” two properties.
- We need to eliminate our financial entanglements; it’s stressful and unhealthy
(c) He just sells the house and gives me 40% of the proceeds and we pay a boatload of taxes on it (Gift taxes? Capital Gains taxes?) and it sucks but at least I don’t have to worry about this anymore.
(e) Get a time machine and hire a lawyer before we separated.
What other options might we have here?
I mean obviously we need to hire a lawyer at some point to figure all this out, but what flavor? Tax Attorney? Real Estate Attorney? Family Law? I’ve run the situation by some paralegal and accountant friends and they’re all “sheesh yeah you def want to talk to someone” … but who?
Assume everyone involved is not looking to screw anyone else over
I know this isn’t the place to seek legal or tax advice, but just having an idea of where to start and who to talk to would be helpful. I apologize in advance if I’m providing too much extraneous detail, but I know there are a billion variables and I don’t want to leave anything out.
My former partner and I were together for 15 years and have two children together. We were never married, and when we separated, we never went through any kind of formal separation proceeding. We get along well, and care for each other as people, and we’ve (likely mistakenly) never believed there was any need to make anything super formal.
We bought a house in 2007; his was the name on the mortgage, but I was on the deed. We separated in 2014, and we agreed that we would split the proceeds of the sale of the house 60/40, with me taking the smaller share. He was not prepared to sell the house at that time, could not afford to buy me out of the house, and I would never force him out of the house, in the interest of keeping our relationship as amicable as possible.
In 2017 I was ready to buy my own house, but the type of loan I needed required that I couldn’t own any other property. So I filed a quitclaim to remove my name from the deed on the house that we co-owned.
My former partner is planning to sell the house in 2020, and we’re trying to figure out how to best prepare for the sale of this as well as make sure that I get my 40% while losing as little as possible to taxes (I am generally a big fan of taxes, but the systems in place to protect assets don’t really apply to this weird-ass situation, I don’t think).
Some ideas we’ve considered:
(a) File a new quitclaim to put me back on the deed before the sale of the property but…
- does that count as a gift?
- Will I still get the capital gains exemption since I haven’t lived in the house for 5 years?
(b) He “buys” part of my house with the proceeds (equaling 40% of the sale of the old property) but…
- At some point I’d want him off the deed and I’m not sure what the tax implications are there (is it a gift? When I removed myself from the deed of the other house, there were no tax implications afaik, but then again, no money changed hands).
- He will want to buy a new house, and I don’t think the capital gains exemption counts if you “buy” two properties.
- We need to eliminate our financial entanglements; it’s stressful and unhealthy
(c) He just sells the house and gives me 40% of the proceeds and we pay a boatload of taxes on it (Gift taxes? Capital Gains taxes?) and it sucks but at least I don’t have to worry about this anymore.
(e) Get a time machine and hire a lawyer before we separated.
What other options might we have here?
I mean obviously we need to hire a lawyer at some point to figure all this out, but what flavor? Tax Attorney? Real Estate Attorney? Family Law? I’ve run the situation by some paralegal and accountant friends and they’re all “sheesh yeah you def want to talk to someone” … but who?
N’thing that just spend a couple of hundred split between the two of you to to go to a professional and get it formalized. Everything is cool between you guys, but someone else could decide they have an interest in the money (a new partner for him, or his family members if he were to pass away suddenly) and that could complicate things immensely. (Says the person who had an amiable relationship with my ex - including a mutually beneficial agreement - that his greedy family members without an understanding of family law have now caused him to spend $20,000+ in legal fees plus owe an additional $100,000+ to me as well as wreck his relationship with me and our kids because of their ego)
posted by saucysault at 11:59 AM on May 25, 2019 [5 favorites]
posted by saucysault at 11:59 AM on May 25, 2019 [5 favorites]
Since you filed a quitclaim, your former partner owns the house outright. When they sell the house, as a single person they will have a $250,000 exemption on any capital gains. If the capital gains are less than his limit, then there will be no federal taxes on the sale. My understanding is that Oregon follows the federal exemption rules.
How to get your share of the proceeds is a little more complicated and you should consult a lawyer. It does not appear that you have a written agreement, but verbal agreements can be valid. If valid, essentially you agreed to transfer your share of the house to your former partner in exchange for a future payment - essentially a loan. A loan requires minimum interest payments, which a lawyer can work out for you.
But even if you don't have a legally valid loan, your former partner can gift the proceeds to you. You do not owe taxes on a gift that you receive. Your former partner will have to fill out a gift tax Form 709. But the lifetime gift tax exemption is currently $11.8 million. So your former partner won't have to pay a gift tax either.
So without getting lawyers involved, the simplest solution is to have your former partner sell the house and use the house sale exemption to avoid capital gains tax. Then your former partner can simply gift your share to you, file Form 709, and neither of you will owe gift taxes.
posted by JackFlash at 12:55 PM on May 25, 2019 [3 favorites]
How to get your share of the proceeds is a little more complicated and you should consult a lawyer. It does not appear that you have a written agreement, but verbal agreements can be valid. If valid, essentially you agreed to transfer your share of the house to your former partner in exchange for a future payment - essentially a loan. A loan requires minimum interest payments, which a lawyer can work out for you.
But even if you don't have a legally valid loan, your former partner can gift the proceeds to you. You do not owe taxes on a gift that you receive. Your former partner will have to fill out a gift tax Form 709. But the lifetime gift tax exemption is currently $11.8 million. So your former partner won't have to pay a gift tax either.
So without getting lawyers involved, the simplest solution is to have your former partner sell the house and use the house sale exemption to avoid capital gains tax. Then your former partner can simply gift your share to you, file Form 709, and neither of you will owe gift taxes.
posted by JackFlash at 12:55 PM on May 25, 2019 [3 favorites]
It does not appear that you have a written agreement, but verbal agreements can be valid. If valid, essentially you agreed to transfer your share of the house to your former partner in exchange for a future payment - essentially a loan.
Not an Oregon lawyer but this would almost certainly fall within the statute of frauds there--couldn't be done without a written agreement.
posted by praemunire at 1:11 PM on May 25, 2019 [1 favorite]
Not an Oregon lawyer but this would almost certainly fall within the statute of frauds there--couldn't be done without a written agreement.
posted by praemunire at 1:11 PM on May 25, 2019 [1 favorite]
Fraud? A verbal agreement can be a valid binding contract. That is not fraud. There are some limitations but a lawyer can determine if your agreement with the partner that you would receive financial consideration for your quitclaim, which neither of you dispute, is a valid contract. That is not fraud. The question would be whether the terms of your verbal agreement were sufficiently explicit. If both you and your partner agree that the terms were understood by both, that you would receive 40% of the proceeds of the sale in exchange for the quitclaim, it should be okay. A lawyer can advise you.
But in lieu of a valid contract, then your former partner can simply gift the proceeds to you tax-free. It's one or the other, either a legal business transaction or a gift.
posted by JackFlash at 2:10 PM on May 25, 2019
But in lieu of a valid contract, then your former partner can simply gift the proceeds to you tax-free. It's one or the other, either a legal business transaction or a gift.
posted by JackFlash at 2:10 PM on May 25, 2019
"Statute of Frauds" is the name of a legal doctrine -- praemnire was not saying that the verbal agreement was fraudulent. The Statute of Frauds requires that certain types of agreements must be in writing, to avoid problematic situations that often arose when writings were not required. In particular, agreements having to do with real property must be in writing.
In this case, I assume the quitclaim was in writing (if it was not -- if OP just orally said to ex, "I quitclaim this property to you" -- then the Statute of Frauds would prevent that from being effective.) So the real question is, what about ex-partner's promise in return: "If you quitclaim your interest, I will give you money when I sell the house."
I don't think that needs to be in writing†, although it would have been better if it was. But I'm not sure you can fix it now (e.g. by writing up a new agreement) since the quitclaim was apparently in the past.
My guess is that a tax lawyer will be most useful to you in this situation. You need to make sure that you get enough of a capital-gains exemption that you don't have to pay tax on the increased value of the house. Then, as long as your ex is willing to cut a check for the amount you agreed on, you're good to go. But if that's still a year or two in the future, you might want to try to get some other paperwork in place to avoid the problem of "ex gets hit by bus, and ex's heirs aren't interested in honoring his deal with you."
†IAAOregonA, but IANYL. I have not researched whether the "I will give you money" part of your deal needed to be in writing.
posted by spacewrench at 3:58 PM on May 25, 2019 [3 favorites]
In this case, I assume the quitclaim was in writing (if it was not -- if OP just orally said to ex, "I quitclaim this property to you" -- then the Statute of Frauds would prevent that from being effective.) So the real question is, what about ex-partner's promise in return: "If you quitclaim your interest, I will give you money when I sell the house."
I don't think that needs to be in writing†, although it would have been better if it was. But I'm not sure you can fix it now (e.g. by writing up a new agreement) since the quitclaim was apparently in the past.
My guess is that a tax lawyer will be most useful to you in this situation. You need to make sure that you get enough of a capital-gains exemption that you don't have to pay tax on the increased value of the house. Then, as long as your ex is willing to cut a check for the amount you agreed on, you're good to go. But if that's still a year or two in the future, you might want to try to get some other paperwork in place to avoid the problem of "ex gets hit by bus, and ex's heirs aren't interested in honoring his deal with you."
†IAAOregonA, but IANYL. I have not researched whether the "I will give you money" part of your deal needed to be in writing.
posted by spacewrench at 3:58 PM on May 25, 2019 [3 favorites]
OP, please see your own lawyer and very carefully walk through the papers you signed to get your new mortgage. You could be accused of mortgage fraud (which is a felony, and regularly prosecuted as such) if your quit-claim was not in good faith -- i.e., you signed a mortgage application saying you had no interest in other property, while knowing that you in fact were retaining a 40% interest.
posted by MattD at 4:05 PM on May 25, 2019 [2 favorites]
posted by MattD at 4:05 PM on May 25, 2019 [2 favorites]
In case you need advice on finding a lawyer, now that you know the kind to look for: http://mefiwiki.com/wiki/Get_a_lawyer
posted by nat at 6:31 PM on May 25, 2019
posted by nat at 6:31 PM on May 25, 2019
Most people don't understand how the gift tax works. There is an annual exemption (currently $15,000) but that doesn't mean you (either the giver or the recipient) owe tax on gifts in excess of that sum. All that happens when the giver exceeds the annual limit is that they must report it to the IRS, and it counts against their lifetime exemption. Gift tax isn't even paid during the giver's lifetime--if at the time of their death their total annual *excess* gift filings plus the value of their estate exceeds $11.4 million, then the estate will owe taxes. It's really just not an issue for most people.
posted by drlith at 7:43 PM on May 25, 2019 [1 favorite]
posted by drlith at 7:43 PM on May 25, 2019 [1 favorite]
OR SOF includes "An agreement for...the sale of real property, or of any interest therein." The OP would be much better served by consulting an OR lawyer than by my trying to sort out remotely whether there's some reason that agreement wouldn't fall into that category, but I'd say it's more likely than not that it does.
posted by praemunire at 10:46 AM on May 26, 2019
posted by praemunire at 10:46 AM on May 26, 2019
This thread is closed to new comments.
Ask him to write a note starting that he will give you a share of the proceeds. This will protect your interests and be useful in the off chance the IRS cares. Such a note saved my house for me when I got divorced. A couple of paragraphs on a coffee-stained sheet of paper. Whew.
posted by theora55 at 11:53 AM on May 25, 2019 [1 favorite]