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  • Writer's pictureJames Chau

Property Transfers Incident to Divorce for Same Sex Couples

Recently in Texas a group of courts refused to grant a divorce to same sex couples on the grounds that allowing a couple to get a court divorce was similar to recognition of the marriage. I recently found an article on this matter.

Approximately 50 years ago, Congress changed the tax code to state that transfers incidental to a divorce are a tax free transaction. This matter even affects same-sex couples who reside in other states such as California that recognize their marriage because it involves tax penalties on same-sex married couples.

According to the article, currently, if one spouse in a marriage of two people of the opposite sex gets the entire house or a portion of their spouse’s savings account, the transfer is considered incident to a divorce and is a tax free transaction.

The article states that same sex divorces have none of these privileges. Partners may be considered married under state law and one of the partners may have to transfer properties or investment accounts or pay alimony to their ex, the spousal exemption from taxation does not apply to them. This creates a problem because the IRS hasn’t clearly stated what rules should be applied in this situation. Is it a gift, which could eventually result in a gift tax being owed by the one making the gift, or is it taxable income to the recipient?

Recently the IRS issued a “Chief Counsel Advisory” that community property income would be treated as joint income for income tax reporting purposes, even if the marriage or domestic partnership was not recognized as a marriage in community property state. But the rulings have only dealt with income tax reporting for income, so it’s not known what the IRS will do when it comes to a divorce. Hopefully the rules will be changed so that the tax free exemption for transfers incident to a divorce applies to all kinds of partnerships.

If there are any legal questions you may have, I encourage you to, please contact my San Jose Divorce Lawyers office. My San Jose Family Lawyer offices assists many people who are going through family law related issues. We have many Affordable San Jose Divorce Lawyer solutions for many different budgets. We help many individuals through this very chaotic period in their life. Proudly serving the following cities, Fremont, Milpitas, Los Gatos, Cupertino, Mountain View, and Santa Clara.

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