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How does the Government look at Asset Transfers in a Divorce?

Posted by Elise Buie | May 14, 2015 | 0 Comments

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A lot of people don't like the IRS. There are lots of little gotchas that can put people on the hook for large sums of money. Sometimes these hit during a divorce, and sometimes much later when split property is cashed out. It depends on the asset in question.

In most cases, when there is a transfer of assets under a divorce settlement the government treats it as a gift between spouses for tax purposes. This means they're both immune to income tax and to the gift tax. The government really doesn't want to get involved in taking away money when a split happens. However, if the spouse is a nonresident alien then it is taxable, so be careful of this if it applies!

What about less tangible assets like stock options? Since Washington is a community property state, your ex-spouse could take part of them in a divorce if you got the options after you got married. Luckily, the IRS also has a hands-off approach here too. In a nutshell, any stock options transferred to the non-employee spouse will be converted to nonqualified employer stock options. This transfer is also considered a gift and no income tax applies.

Later, if the non-employee spouse does exercise those options they will be on the hook for any taxes and withholdings from the money made. This will not affect the other spouse's taxes.

Do you have a question about how your property will be divided up in a divorce settlement? If you live in Washington, call Elise Buie Family Law Group, PLLC for a free consultation about your situation. We've helped many couples come to fair settlements in their divorces.

About the Author

Elise Buie

Passionate, creative, problem-solving attorney who crafts solutions rather than obstacles. Elise spends significant time educating her clients on healthy communication skills. Elise also ensures that her clients make informed decisions by understanding the future emotional and financial implications of their decisions. Your family's future is our first priority. Elise teaches her clients new skills to empower them in the future as they adjust to the new family structure. While divorce ends a marriage, it is the beginning of your new, often times, more authentic life. Elise will help you begin that new life with new skills to handle any future challenges.

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At Elise Buie Family Law Group, PLLC, we represent clients from Seattle and Bellevue, Washington, and the surrounding region, including all of King County and the cities of Redmond, Kirkland, Bellevue, Edmonds, Issaquah, Kenmore, Kent, Federal Way, Shoreline, Des Moines, Bainbridge Island, Vashon, Auburn, Renton and Puyallup. We love working with clients from Seattle's unique, eclectic neighborhoods: West Seattle, Fremont, Ballard, Madrona, Queen Anne, Greenwood, Ravenna, Maple Leaf, Wedgewood, View Ridge, Laurelhurst, Windermere, Madison Park, Magnolia, South Lake Union, Capitol Hill, Broadmoor, Phinney Ridge, Crown Hill, Yarrow Point and Mercer Island.

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Elise Buie Family Law Group PLLC
1001 Fourth Avenue, 44th Floor   Seattle, WA 98154

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