What if the property that I want to transfer to my spouse produces income?

If you have property such as accounts receivable, deferred compensation, pension plans, these types of property may have an “income” component.  The common recommendation is to reserve disposition of these assets until you know the details about the property and then to divide the property between the parties such that each spouse reports his or her share of the income when received. You can structure this as contingent spousal support or an allocation of community income which is similar to the division of stock options.

If you are interested in learning more, you can contact me at Amanda@gordonfamilylaw.com for more information.

The information set forth in this Question and Answer was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding United States federal tax penalties that may be imposed on the taxpayer.  The information was written to support the promotion or marketing of the matters addressed in this Question and Answer.  All taxpayers should seek advice based upon the taxpayer’s particular circumstances from an independent tax advisor.  The foregoing language is intended to satisfy the requirements under the regulations in Section 10.35 of Circular 230.

Will I be taxed on when I transfer property to my spouse in a divorce?

Experienced Bay Area family law attorneys will advise clients about the tax consequences in a divorce.

Section § 1041 of the Internal Revenue Code says that if you transfer property from one spouse to another during marriage or incident to divorce, then there is no recognition of tax gain or loss.

This is true regardless of where the property is located. The no tax transfer rule includes any property, real or personal, tangible or intangible can be transferred tax free, including an promissory note, life insurance, pension buyout payment.

There is no limit on the amount or type of property that spouses can transfer to each other without incurring tax.

The IRS allows for non-recognition of gain/loss between spouses and ex-spouses up to one year after the date of termination of marital status and transfers within six years of the divorce may qualify if the transfers are “incident to the divorce”.

The transfer must be to or “on behalf of” a spouse or former spouse. A transfer to a third party on behalf of a spouse qualifies for §1041 treatment if the transferee spouse requests or ratifies the transfer in writing. The writing must state that the parties intend §1041 to apply and the transferor must receive the document before filing his or her first tax return for the year of the transfer. Approved writings include (1) a divorce or separation instrument, (2) the transferee’s written request and (3) the transferee’s written consent or ratification which includes a reference that the transfer is intended to qualify for non-tax treatment under IRC §1041.  A transfer will be “on behalf of” the other party if it satisfies an obligation of the transferee spouse.  

Transfers More Than One Year After Judgment of Marital Termination. Transfers more than one year after termination of marital status will qualify for §1041 if they are “related to the cessation” of the marriage.  If the transfer occurs within six years after the date on which the judgment dissolving the marriage was entered, the transfer is presumed to be “related to the cessation of the marriage”. If the transfer is more than six years after the termination of the marriage, it is presumed not to be related to the cessation of the marriage.

If you are concerned about timing problems you can solve them by creating a specific reference in your marital settlement agreement where you cite IRC §1041.  The six-year presumption of “related to the cessation of the marriage” is different from a “transfer within one year of the marriage termination” which is mandatory and not a presumption.  A transfer within the first year will be subject to §1041 rules no matter what business or other reasons are present.

The six-year presumption is rebuttable. For example, if there is a transfer three years after the marriage ends but it can be established that it was required for business reasons, the transfer may not be considered as one related to the cessation of the marriage.

After six years from the date of dissolution, the presumption that it is not related to the cessation of marriage may also be rebutted if it can be proven that it was to affect the division of marital property. While most transfers occur within 6 years, it is possible that the transfer may take longer due to extended litigation or delayed sale of property if there are minor children.

The information set forth in this Question and Answer is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding United States federal tax penalties that may be imposed on the taxpayer.  The information was written to support the promotion or marketing of the matters addressed in this Question and Answer.  All taxpayers should seek advice based upon the taxpayer’s particular circumstances from an independent tax advisor.  The foregoing language is intended to satisfy the requirements under the regulations in Section 10.35 of Circular 230.

My spouse won’t complete their financial disclosures, what should I do?

Experienced Bay Area family law attorneys will tell clients that if a party fails to serve declarations of disclosure, the first step for the complying party is to informally request the noncomplying party prepare the declaration of disclosure. FC §2107(a). If the informal request is unsuccessful, then the complying party may file one or more of the following motions:

1. Motion to compel further responses. FC §2107(b)(1)

2. Motion for an order preventing the noncomplying party from presenting evidence onissues that should have been disclosed. FC §2107(b)(2).

If you are interested in learning more, you can contact me at Amanda@gordonfamilylaw.com for more information.

Does Cohabitation constitute a change of circumstances to modify support?

Yes. A supported spouse's cohabitation with a person of the opposite sex gives rise to a rebuttable presumption of proof of decreased need for spousal support.

Under the family code,"Cohabitation" means more than a roommate relationship; the statute contemplates a personal, romantic relationship. 

That being said, even a simple boarding arrangement under which expenses are shared or rent received may reduce the need for support and thereby constitute changed circumstances. Cohabitation may reduce the need for spousal support because sharing a household reduces the expenses of the supported spouse. Additionally, the cohabitant's income may be available to the supported spouse. 

Courts have found that an earlier determination that a spouse was merely a roommate does not preclude a court from later recognizing a change in the relationship and determining that the roommates are cohabiting. The change in the relationship constitutes a change of circumstances warranting a review of the existing spousal support award. In re Marriage of Bower, 96 Cal. App. 4th 893, (2d Dist. 2002).

A supporting spouse's cohabitation does not have the same impact on a case. The income of a supporting spouse's subsequent spouse or nonmarital partner will not be considered when determining or modifying spousal support. FC § 4323 (b). The provision was intended to exclude both direct and indirect consideration of new mate income. In re Marriage of Romero, 99 Cal. App. 4th 436, (4th Dist. 2002). 

While the statute does not expressly address expenses, it has been held that not only must new spouse income be disregarded but also the  additional expenses resulting from the remarriage. In re Marriage of Romero, 99 Cal. App. 4th 1436, 122 Cal. Rptr. 2d 220 (4th Dist. 2002).

If you are receiving spousal support and are considering moving in with a friend/partner, keep in mind that your ex could make a motion to reduce support. If you are interested in learning more, you can contact me at Amanda@gordonfamilylaw.com for more information.

Will spousal support be reduced when I retire?

Most likely. 

A supporting spouse's attainment of retirement age may constitute a material change of circumstances for purposes of a motion to modify a spousal support order.  This depends on the nature of employment, whether the supporting spousal will receive a pension, and what terms are included in the Marital Settlement Agreement. 

A material change in circumstances has been found when the supported spousal became old enough to access a retirement fund without penalty and where the accessibility and possible increase in value of the obligee's share of the retirement accounts were part of the parties' expressed reasonable expectations in entering the stipulated judgment. In re Marriage of Dietz, 176 Cal. App. 4th 387, 97 Cal. Rptr. 3d 616 (4th Dist. 2009), as modified, (Sept. 2, 2009)

If you are interested in learning more, you can contact me at Amanda@gordonfamilylaw.com for more information.