Hello tomgts, and thanks for visiting us with your question.
First of all, let me say that I am sorry to hear of the divorce. It
must be a tough time, and with this home question looming over you,
I’m sure that it makes it all that more difficult.
Although I am an attorney in Michigan with quite a bit of experience
in divorce, the advice that I will provide here, although solid in
Michigan may or may not apply in your state and each scenario that I
will discuss should be referred to your attorney. None of the
following should be considered legal advice outside of the state of
Michigan.
With that said, let’s review your facts:
Your age: 53
Income: $35,800
Appraised Value: $155,000
Mortgage Balance: $52,800
Spouses Equity: $51,000 (approximate)
You favor keeping the house
Your spouse will probably have physical custody of the children
There are a number of options open to both you and your wife
concerning the house. Some of them have important tax ramifications,
although as a general rule, if the house is sold, under these facts
you shouldn’t have any tax liability (but confirm this with your tax
person).
DON’T ASSUME YOU CAN’T GET A MORTGAGE! Age 53 should not be an
obstacle for you. I am the same age you are and just financed a new
home purchase last year – no problems. Besides, there are other ways
to finance – the person keeping the house could make installment
payments (including interest) to the other person – a nice source of
income that has the collateral or security being the house.
In each of the options below, I am including language that might be
placed in the legal document (in Michigan it is called a “Judgment of
Divorce” – other states have different names, but it is the agreement
that splits the assets in a divorce). Your attorney must review these
provisions, but he/she should find them very helpful.
ALSO, divorce is an “equitable” matter for the court, which means that
the judge should do what is “fair” for the parties. He/she shouldn’t
place anyone into a position to do something that they can’t otherwise
do – he/she can’t have you perform the impossible. Although the path
of least resistance may be for the two of you to sell the home and
split the net equity, there are a number of other options:
Now, in summary, let’s look at the options.
1. SELL THE HOME AND DIVIDE THE PROCEEDS (The Basic Option); or
2. EQUAL DIVISION OF THE HOME WITH YOUR WIFE WHO WILL HAVE CUSTODY OF
THE HOME, TO HAVE THE RIGHT TO LIVE THERE, RENT FREE, UNTIL THE
CHILDREN ATTAIN THAT AGE OF MAJORITY OR UNTIL THE OCCURRENCE OF OTHER
SPECIFIED EVENTS (this may cut down substantially the amount of child
support you have to pay!); or
3. EQUAL DIVISION OF THE HOME, WITH ONE SPOUSE HAVING THE RIGHT TO
SELL HIS OR HER INTEREST TO THE OTHER AT THE END OF A SPECIFIED
PERIOD; or
4. TRANSFER OF THE RESIDENCE TO YOU, WITH A PROVISION FOR THE
REFINANCING OF THE EXISTING INDEBTEDNESS, AND TRANSFER OF THE LOAN
PROCEEDS TO YOUR WIFE FOR HER HALF OF THE EQUITY OF THE RESIDENCE; or
5. TRANSFER OF THE HOME TO YOU WITH A PROVISION THAT AT THE END OF A
SPECIFIED PERIOD, YOU MUST EITHER SELL THE RESIDENCE OR REFINANCE THE
RESIDENCE AND THEN TRANSFER TO YOUR WIFE LOAN PROCEEDS EQUAL TO HALF
OF THE EQUITY IN THE HOME; or
6. INSTALLMENT SALE OF RESIDENCE TO ONE SPOUSE WITH A PROVISION UNDER
WHICH INSTALLMENT PAYMENTS ARE WAIVED BY THE OTHER SPOUSE WHEN DUE, AS
ADDITIONAL SUPPORT OF THE OF THE OCCUPYING SPOUSE; or, finally,
7. TRANSFER OF RESIDENCE TO ONE SPOUSE WITH A PROVISION THAT THAT
SPOUSE IS TO PURCHASE A NEW RESIDENCE FOR THE OTHER (probably not an
option with your facts).
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Now, let’s look at the options individually. In each of these
options, there is a bit on the tax ramifications, as well as some
“suggested” language that might be placed in a Judgment of Divorce by
your attorney. Although these sections may be a bit long
(particularly those darned tax discussions), each option contains a
fair amount of information that you and your attorney may find useful:
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1. SELL THE HOME AND DIVIDE THE PROCEEDS.
This option provides for a sale of the family home, with the proceeds
to be used to pay existing liens on the property and a division of the
net proceeds between the spouses. This type of provision is
appropriate when neither party wishes to live in the home, when the
parties cannot agree on which of them should be allowed to live there,
or when the sale of the house is necessary or desirable for financial
reasons. On the other hand, if there are minor children who would
benefit from residing in the family home, the sale should be
postponed, if possible, at least until the children have reached
majority or no longer live in the home.
Tax Consequences of Sale.
If the residence is sold to a third person pursuant to a marital
termination agreement, up to $ 250,000 of gain realized on the sale or
exchange may be excluded from income if the individual owned and used
the property as a principal residence for an aggregate of at least two
years during the five year period preceding the sale or exchange [ See
the Internal Revenue Code (abbreviated after this as “IRC”) §§ 121(a),
(b)(1) ]. The exclusion is allowed no more often than every two years
[ IRC§ 121(b)(3)(A) ].
Sale of Residence Form for your attorney to place in the Judgment:
Husband and Wife agree that the family residence, located at
_________________ [address], and further described in Exhibit
_________________, attached to this Agreement and incorporated into it
by this reference, shall be sold. The proceeds of the sale shall first
be applied to discharge all existing liens on the property, with any
remainder to be divided between Husband and Wife as follows: Husband
to receive ____ percent of the remainder; Wife to receive ____ percent
of the remainder.
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2. EQUAL DIVISION OF THE HOME WITH YOUR WIFE WHO WILL HAVE CUSTODY OF
THE HOME, TO HAVE THE RIGHT TO LIVE THERE, RENT FREE, UNTIL THE
CHILDREN ATTAIN THAT AGE OF MAJORITY OR UNTIL THE OCCURRENCE OF OTHER
SPECIFIED EVENTS; or
This option provides that ownership of the family residence is to be
divided equally between the parties, with one spouse given the right
of exclusive occupancy of the residence. The right to occupy the
residence terminates on the earliest occurrence of any of certain
defined events, such as the children's attaining a certain age,
abandonment of the residence, death, or remarriage. On termination of
the right to occupy the residence, the residence is to be sold and the
proceeds divided between the parties or their successors in interest.
Tax Consequences
Deductibility of Right to Reside in Home.
The value of the rent to the spouse in possession of the residence is
not considered alimony for income tax purposes, since alimony has been
defined to include only cash payments to or on behalf of a spouse. As
such, the rental value will be neither deductible by the supporting
spouse nor taxable to the supported spouse [see IRC§ 71(b)(1) ; Temp.
Treas. Reg. § 1.71-1T(b).
Deductibility of Mortgage Payments and Taxes.
Mortgage payments, insurance premiums, taxes, and sums spent for
maintenance of the residence by the spouse not in possession may
qualify for tax treatment as alimony (inclusion in the income of the
spouse in possession and deduction by the paying spouse) if those
expenditures meet all of the requirements of Internal Revenue Code
Section 71 . The payments will not meet the Section 71 requirements if
they are contingent in any way on the children's minority [ IRC§§
71(a), (c)(2) ; Temp. Treas. Reg. § 1.71-1T(c) ].
A spouse who is the sole owner of a residence that the other spouse
has been given a right to occupy is not allowed an alimony deduction
for payments for the mortgage, insurance, or taxes on the residence
while the other spouse lives there [ Rev. Rul. 67-420, 1967-2 C.B. 63
]. These payments are deemed to be made for the owner's benefit,
rather than as support for the resident spouse [ Rev. Rul. 67-420,
1967-2 C.B. 63 ]. However, the owner spouse may be able to claim the
taxes and mortgage interest as itemized deductions against adjusted
gross income [ IRC§§ 67, 163, 164 ; see Rev. Rul. 67-420, 1967-2 C.B.
63].
If the spouses jointly own the residence and both are liable on the
mortgage, the spouse who pays the mortgage, insurance, and taxes is
deemed to have a right of contribution for the other's share of the
payments [ Rev. Rul. 67-420, 1967-2 C.B. 63 ]. The payments would
therefore not be treated as alimony for tax purposes [ Rev. Rul.
67-420, 1967-2 C.B. 63 ]. However, if the payer spouse agrees in a
separation agreement to make the payments, or to furnish funds to
satisfy the obligation, he or she is considered to have waived the
right of contribution [ Rev. Rul. 67-420, 1967-2 C.B. 63 ]. Thus, if
the separation agreement requires the resident spouse to pay a portion
of the support received from the nonresident spouse to satisfy the
mortgage and taxes, half of the principal, interest, and tax payments
are treated as alimony, which are therefore deductible by the payer
spouse and includable in the gross income of the resident spouse [
Rev. Rul. 62-39, 1962-1 C.B. 15 ; see Treas. Reg. § 1.71-1T(b) ]. The
resident spouse may then claim itemized deductions allowed for the
amount of support disbursed for interest and taxes. Since the other
half of the payments are for the payer's benefit, they must be
included in the payer's gross income, although the payer may also take
itemized deductions for his or her share of interest and taxes [ Rev.
Rul. 67-420, 1967-2 C.B. 63 (joint ownership with right of
survivorship); Rev. Rul. 62-39, 1962-1 C.B. 15 (tenancy in common)].
A taxpayer may generally deduct interest on indebtedness secured by a
qualified residence, if the interest is qualified residence interest [
IRC§§ 163(h)(3), (4) ]. A ''qualified residence'' is (1) the
taxpayer's principal residence [ IRC§ 163(h)(4)(A)(i)(I) ; see IRC§
121 ]; or (2) a second residence that the taxpayer selects for the
taxable year, if the taxpayer's personal use of the residence exceeds
the greater of fourteen days or 10 percent of the days during the
taxable year for which the unit is rented at a fair price [ IRC§
163(h)(4)(A)(i)(II) ; see IRC§ 280A(d)(1) ]. A second residence is
deemed to be used for personal purposes for a day if, during any part
of the day, it is used for nonbusiness reasons by (1) the taxpayer,
another person with an interest in the residence, or a family member
[see IRC§ 267(c)(4) ] of the taxpayer or another person with an
interest in the residence; (2) any individual under an arrangement
that enables the taxpayer to use another dwelling, regardless of
whether rent is charged for use of the other dwelling; or (3) any
other individual, other than an employee of the taxpayer who uses the
unit for the convenience of the taxpayer [see IRC§ 119 ] or a tenant
who rents the unit for an amount that is fair under the facts and
circumstances [ IRC§ 280A(d)(2) ; see IRC§ 163(h)(4)(A)(i)(II) ]. The
determination of whether any property is a qualified residence of the
taxpayer must be made as of the time the interest is accrued [ IRC§
163(h)(3)(A) ].
''Qualified residence interest'' is interest that is paid or accrued
during a taxable year on acquisition indebtedness or home equity
indebtedness secured by a qualified residence [ IRC§§ 163(h)(3)(A),
(4)(A) ]. ''Acquisition indebtedness'' is any indebtedness incurred in
acquiring, constructing, or substantially improving the residence [
IRC§ 163(h)(3)(B)(i) ]. ''Acquisition indebtedness'' also includes
indebtedness incurred in refinancing qualified acquisition
indebtedness, to the extent the refinanced amount does not exceed the
amount of the original indebtedness [ IRC§ 163(h)(3)(B)(i) ]. For most
taxpayers, the aggregate amount of acquisition indebtedness may not
exceed $ 1,000,000 for any taxable year; however, for a married
taxpayer filing a separate return, the aggregate amount of acquisition
indebtedness may not exceed $ 500,000 for any taxable year [ IRC§
163(h)(3)(B)(ii) ]. ''Home equity indebtedness'' is any indebtedness
(other than acquisition indebtedness) that does not exceed the fair
market value of the residence minus the amount of acquisition
indebtedness for the residence [ IRC§ 163(h)(3)(C)(i) ]. For most
taxpayers, the aggregate amount treated as home equity indebtedness
may not exceed $ 100,000 for any taxable year; however, for a married
taxpayer filing a separate return, the aggregate amount of home equity
indebtedness may not exceed $ 50,000 for any taxable year [ IRC§
163(h)(3)(C)(ii) ]. Deductible home mortgage interest is not subject
to the passive loss limitations of the Internal Revenue Code [see IRC§
469(j)(7) ].
Special treatment is given to indebtedness incurred on or before
October 13, 1987, and secured by a qualified residence: (1) the entire
amount of that indebtedness is treated as acquisition indebtedness,
and (2) there is no limitation on the amount of that indebtedness that
may be treated as acquisition indebtedness for a taxable year [ IRC§§
163(h)(3)(D)(i), (iii)(I) ]. This special treatment also extends to
indebtedness incurred after October 13, 1987, for the refinancing of
indebtedness incurred on or before October 13, 1987, but only to the
extent of the original indebtedness [ IRC§ 163(h)(3)(D)(iii)(II) ; see
IRC§ 163(h)(3)(D)(iv) (limitation on period in which refinancing may
be treated as acquisition indebtedness)]. If a taxpayer has
acquisition indebtedness that was incurred after October 13, 1987, the
$ 1,000,000 limitation on that indebtedness (or the $ 500,000
limitation in the case of a married taxpayer filing a separate return)
is reduced by the aggregate amount of outstanding acquisition
indebtedness incurred before October 13, 1987 [ IRC§ 163(h)(3)(D)(ii)
].
The limits on the deduction of home mortgage interest are effective
for taxable years beginning after 1987, but they are phased in for
taxable years prior to 1991 [ IRC§ 163(h)(5) (enacted as IRC§
163(h)(6) )]. Under the phase-in rules, the owner may deduct specified
percentages of any interest on indebtedness that exceeds the maximum
qualified indebtedness [ IRC§ 163(h)(5) (enacted as IRC§ 163(h)(6) );
see IRC§ 163(d)(6) (applicable percentages)].
Exclusion of Gain on Sale of Principal Residence.
For sales and exchanges of a principal residence after May 6, 1997,
unless the individual elects otherwise, up to $ 250,000 of gain
realized on the sale or exchange may be excluded from income if the
individual owned and used the property as a principal residence for an
aggregate of at least two years during the five year period preceding
the sale or exchange [ IRC§§ 121(a), (b)(1) ]. The exclusion is
allowed no more often than every two years [ IRC§ 121(b)(3)(A) ].
Form Provision for Equal Division of Residence With Exclusive
Possession by One Spouse for Specified Period and Eventual Sale for
your Attorney to review for placement in the Judgment of Divorce:
Division of Residence
1. The parties equally divide their interest in the family residence
located at _________________ [address], more particularly described in
Exhibit _________________, which is attached to this Agreement and
incorporated into it by this reference, so that each party has an
undivided half interest in the property as a tenant in common.
Occupancy of Residence
2. The parties agree that the _________________ [identify occupying
spouse, i.e., Husband or Wife] shall have the right to exclusive
occupancy of the residence until the occurrence of the earliest of the
following:
[Select appropriate provisions]
(1) The youngest of the parties' minor children has attained the age
of _________________ [e.g., twenty-one or eighteen] years.
(2) The _________________ [occupying spouse] chooses to move to
another permanent residence.
(3) The sale of the residence by mutual agreement of the parties.
(4) The death or remarriage of the _________________ [occupying
spouse].
As additional support and maintenance of the _________________
[occupying spouse], the _________________ [nonoccupying spouse] agrees
to make all payments on existing _________________ [e.g.,
encumbrances, taxes, and insurance] on the residence during the period
of occupancy. The _________________ [occupying spouse ] agrees to make
all payments for _________________ [e.g., maintenance and repair of
the property] during the period of occupancy.
Sale of Residence
3. If the first of any of the events described in Paragraph 2 occurs
(except in the case of the prior death of the _________________
[occupying spouse ]), either party shall have the option to purchase
the other party's interest in the residence by giving written notice
to the other party within _________________ days of that occurrence.
If neither party desires to purchase the other party's interest, or if
the parties are unable to agree on a purchase price or on which party
is to purchase the residence, then the residence shall be sold to a
third party and the proceeds from the sale, less the costs of sale,
shall be divided equally between the parties or their successors in
interest. If the death of the _________________ [occupying spouse ] is
the first of the above-described events to occur, the
_________________ [nonoccupying spouse ] shall have the right to
purchase the interest of the _________________ [occupying spouse ] in
the residence from _________________ [his or her] estate.
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3. EQUAL DIVISION OF THE HOME, WITH ONE SPOUSE HAVING THE RIGHT TO
SELL HIS OR HER INTEREST TO THE OTHER AT THE END OF A SPECIFIED
PERIOD; or
The following provision divides the residence between the parties
equally, permits one spouse to occupy the residence rent-free for a
specified period, and requires him or her to sell his or her interest
to the other spouse at fair market value when the specified period is
over. The form provides that fair market value is to be determined by
agreement of the parties, or by appraisers or real estate brokers
selected by the parties.
Form - Provision Equally Dividing Residence Between Spouses With
Occupation by One Spouse and Sale to Other Spouse After Termination of
Specified Period
Equal Division of Residence
1. The parties equally divide their interests in the family residence
located at _________________ [address ], so that each party has an
undivided half interest in the property as a tenant in common. A more
particular description of the family residence is as follows:
_________________ [state legal description ].
Occupancy
2. The parties agree that the _________________ [occupying spouse,
i.e., Wife or Husband] shall have exclusive occupancy of the residence
for a period of _________________ [e.g., five] years, and that
_________________ [she or he] shall not be required to pay rent to the
_________________ [other spouse ]. _________________ [Describe
arrangements for payments, e.g., During this period the
_________________ [other spouse ] shall make all mortgage, tax, and
insurance payments on the property and shall be responsible for all
maintenance and major repairs].
Purchase
3. After the end of the period specified in Paragraph 2 , above, the
_________________ [Wife or Husband] shall offer _________________ [his
or her] interest in the residence for sale to the _________________
[other spouse ] at a price that is the fair market value of the half
interest as determined by agreement between the Husband and the Wife.
If the parties are unable to agree on a value, the Husband and the
Wife shall each nominate _________________ [an appraiser or a real
estate broker] to determine the value of the residence. If the two
persons appointed to determine the value of the residence are unable
to agree on the value, both persons shall agree on and appoint a third
_________________ [appraiser or real estate broker] to value the
residence. The determination of the value of the residence under this
provision shall be conclusively binding on the Husband and the Wife.
Payment of Purchase Price
4. At the election of the _________________ [purchasing spouse ], the
purchase of the residence may either be paid in cash or in
installments. If the _________________ [purchasing spouse ] elects to
pay in cash, _________________ [he or she] shall pay the entire amount
of the purchase price within _________________ [number ] days from the
date of the exercise of the option. If the _________________
[purchasing spouse ] elects to pay the purchase price in installments,
_________________ [he or she] shall make a down payment of
_________________ percent of the purchase price within
_________________ [number ] days from the date of the exercise of the
option, and the balance in not more than _________________ [number ]
equal monthly installments, commencing one month after the date of the
down payment, with interest from the date of the down payment at the
rate of _________________ percent per annum, each additional
installment being due one month from the date of the last installment.
The obligations under this provision shall be evidenced by a
promissory note executed by the _________________ [purchasing spouse
], made payable to the _________________ [other spouse ], and
delivered to the _________________ [other spouse ] at the time of the
down payment. The note shall be secured by a mortgage on the
residence.
Failure to Exercise Option
5. If the _________________ [purchasing spouse ] does not exercise
_________________ [his or her] option to purchase the residence within
a reasonable time, the residence shall be sold and the proceeds
divided equally between the Husband and the Wife.
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4. TRANSFER OF THE RESIDENCE TO YOU, WITH A PROVISION FOR THE
REFINANCING OF THE EXISTING INDEBTEDNESS, AND TRANSFER OF THE LOAN
PROCEEDS TO YOUR WIFE FOR HER HALF OF THE EQUITY OF THE RESIDENCE; or
This form provides that the residence be awarded to one spouse with an
immediate refinancing of the existing mortgage, or the obtaining of a
loan by placing a second mortgage on the residence, and the payment of
the loan proceeds to the other spouse. Therefore, the loan proceeds
should be equal to the value of the other spouse's interest in the
house immediately prior to the refinancing.
This provision should be used only after the parties have ascertained
that refinancing is available and that the amount of the loan proceeds
available by refinancing would be sufficient to provide the
nonoccupying spouse with his or her half share of the equity in the
residence.
If refinancing is not available or if sufficient loan proceeds would
not be available from refinancing, the parties should consider
delaying the refinancing until the termination of a specified period.
Form - Residence to One Spouse With Immediate Loan on Residence and
Payment of Loan Proceeds to Other Spouse
Residence
1. The _________________ [nonoccupying spouse, i.e., Husband or Wife]
transfers and assigns to the _________________ [occupying spouse ], as
_________________ [occupying spouse ]'s sole and separate property,
all of _________________ [nonoccupying spouse ]'s right, title, and
interest in and to the family residence, and all of the furnishings
contained in that residence, located at _________________ [address ],
described as follows: _________________ [set forth legal description
].
Refinancing
2. _________________ [Occupying Spouse ] agrees to obtain immediately
_________________ [a secured loan on the family residence in the
amount of $ _________________ or a loan that, after payment of all
loan fees and financing charges, is equal to $ _________________] from
any bank or savings and loan association, the security for which will
be either a second mortgage on the family residence or the refinancing
of the existing mortgage on the family residence. All of the loan
proceeds shall be payable directly by the bank or savings and loan
association to _________________ [nonoccupying spouse ] as part of the
division of the marital property. The _________________ [occupying
spouse ] shall be solely responsible for the repayment of the loan
[add if desired: and for the payment of all existing liens,
encumbrances, taxes, and insurance on the family residence].
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5. TRANSFER OF THE HOME TO YOU WITH A PROVISION THAT AT THE END OF A
SPECIFIED PERIOD, YOU MUST EITHER SELL THE RESIDENCE OR REFINANCE THE
RESIDENCE AND THEN TRANSFER TO YOUR WIFE LOAN PROCEEDS EQUAL TO HALF
OF THE EQUITY IN THE HOME; or
This form provides for the transfer of the residence to one spouse for
a specified period, with the requirement that at the end of that
period either the residence will be sold or the loan on the residence
refinanced. In either case, the nonoccupying spouse will be given his
or her share of the fair market value at that time. This provision may
be used when both spouses want to share in future appreciation of the
value of the residence, or when at the time the agreement is executed
sufficient financing is unavailable to compensate the nonoccupying
spouse for his or her share of the value of the residence.
Form - Residence to One Spouse for Specified Period, Followed by Sale
or Refinancing With Share of Proceeds to Other Spouse
Transfer of Residence
1. _________________ [Nonoccupying spouse, i.e., Husband or Wife]
transfers, conveys, and assigns to _________________ [occupying spouse
], as the sole and separate property of _________________ [occupying
spouse ], all of _________________ [Husband's or Wife's] right, title,
and interest in the family residence, and all of the furnishings
contained in the residence, located at _________________ [address ],
described as follows: _________________ [set forth legal description
].
[Optional provision ]
Mortgage Payments, Taxes, Insurance, and Maintenance
2. As additional support and maintenance of _________________
[occupying spouse ], _________________ [nonoccupying spouse ] agrees
to make all payments as they become due on the mortgage, and all
payments for taxes and insurance on the residence, until the residence
is sold or a loan is obtained as provided below. _________________
[Husband or Wife] shall be responsible for all repairs and maintenance
of the residence until the residence is sold or a loan is obtained as
provided below.
Sale or Refinancing
3. On or before _________________ [date ], at the election of
_________________ [occupying spouse ], the residence shall either be
sold or a secured loan shall be obtained by _________________
[occupying spouse ] on the residence. If the residence is sold, the
net proceeds, after payment of all liens on the property and the costs
of sale, shall be divided between Husband and Wife as follows:
_________________ percent to Husband; _________________ percent to
Wife. If a secured loan is obtained, it shall be obtained either by
refinancing the existing mortgage or by taking out a second mortgage
on the residence, and _________________ [occupying spouse ] shall pay
to _________________ [nonoccupying spouse ] from the loan proceeds an
amount equal to _________________ percent of the then fair market
value of the residence, without a reduction in the value for the
increase in the amount of encumbrances on the residence as a result of
obtaining the loan.
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6. INSTALLMENT SALE OF RESIDENCE TO ONE SPOUSE WITH A PROVISION UNDER
WHICH INSTALLMENT PAYMENTS ARE WAIVED BY THE OTHER SPOUSE WHEN DUE, AS
ADDITIONAL SUPPORT OF THE OF THE OCCUPYING SPOUSE.
This form provides for an installment sale of the residence to one
spouse, to be used if there is no other property of substantial value
with which to make a compensating award to the other spouse. Under
this provision, the spouse receiving the residence becomes indebted to
the other spouse in the amount of the other spouse's share of the
equity of the residence. An optional provision is included for use if
the spouse not receiving the residence is willing to obligate himself
or herself contractually to pay spousal support, waiving payments on
the indebtedness as additional support.
If the property is not already held in the name of the purchasing
spouse, the selling spouse should transfer title to the purchasing
spouse.
Tax Consequences of Sale.
A transfer of a residence between spouses, or between former spouses
incident to divorce, even if the transferee spouse incurs a debt to
the transferor, is nontaxable as long as it meets the requirements of
Internal Revenue Code Section 1041 [see § 252.40 [1] ]. Thus, neither
spouse will recognize gain or loss unless the transferee spouse is a
nonresident alien [ IRC§§ 1041(a)(2), (c), (d) ]. Instead, the
transfer is treated for income tax purposes as a gift, and the
transferee's basis in the property will be the same as the
transferor's adjusted basis [ IRC§ 1041(b) ]. For further discussion,
see § 252.40 .
Form Installment Sale of Residence to One Spouse
Transfer of Residence
1. _________________ [Transferor spouse, i.e., Husband or Wife]
transfers, assigns, and conveys to _________________ [transferee
spouse ], as _________________ [transferee spouse ]'s sole and
separate property, all of _________________ [transferor spouse ]'s
right, title, and interest in the family residence, and all of the
furnishings contained in the family residence, located at
_________________ [address ], more particularly described as follows:
_________________ [set forth legal description ].
Purchase Price
2. _________________ [Transferee spouse ] agrees to pay to
_________________ [transferor spouse ] a purchase price of $
_________________ for _________________ [his or her] interest in the
family residence and the furnishings located in the residence. The
purchase price, plus interest at the rate of _________________ percent
per annum from the date of this Agreement, shall be paid in monthly
installments of at least $ _________________, until the entire
purchase price with interest has been paid in full. The first
installment shall be due and payable on _________________ [date ], and
the remainder of the monthly installments shall be due and payable on
the same day of each succeeding month until paid in full. [Add if
transferee spouse is to execute promissory note: The balance of the
purchase price is evidenced by a nonnegotiable promissory note
executed by _________________ (transferee spouse ), the receipt of
which is acknowledged by _________________ (transferor spouse ).]
[Optional Provision ]
Waiver of Payments
3. As additional support and maintenance of _________________
[transferee spouse ], _________________ [transferor spouse ] agrees to
waive payments of the _________________ [indebtedness or promissory
note] as they become due and payable.
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7. TRANSFER OF RESIDENCE TO ONE SPOUSE WITH A PROVISION THAT THAT
SPOUSE IS TO PURCHASE A NEW RESIDENCE FOR THE OTHER.
This form transfers the existing residence to one spouse and requires
him or her to purchase another residence for the other spouse at a
price not to exceed a specified amount. The form contains an optional
provision that if mutually agreeable, the other spouse may be
permitted to reside in the present residence until the other residence
is purchased, but not beyond a specified period. It provides that the
spouse for whom the new residence is to be purchased is to choose that
residence. The form specifies items of furnishings that are being
transferred with the residence.
Form - Residence to One Spouse With Purchase of New Residence for
Other Spouse
Transfer of Present Residence
1. _________________ [Transferor spouse, i.e., Husband or Wife]
transfers, assigns, and conveys to _________________ [transferee
spouse ], as _________________ [transferee spouse ]'s sole and
separate property, all of _________________ [transferor spouse's ]
right, title, and interest in the family residence located at
_________________ [address ], more particularly described in Exhibit
_________________, which is attached to this Agreement and
incorporated into it by this reference, and the following furnishings
contained in the family residence: _________________ [specify
furnishings to be transferred ].
Purchase of Second Residence
2. _________________ [Transferee spouse ] agrees to purchase another
residence, referred to in this Agreement as the ''second residence,''
for _________________ [transferor spouse ], at a purchase price not to
exceed $ _________________. _________________ [Transferor spouse ]
shall choose this second residence within _________________ months of
this Agreement. Title to the second residence shall be solely in the
name of _________________ [transferor spouse ].
Method of Payment
[Choose one of the following paragraphs: ]
3. The purchase price is to be paid by _________________ [transferee
spouse ] in cash.
[OR ]
3. _________________ [Transferee spouse ] shall have the option to pay
the entire purchase price of the second residence in cash, or to pay
it in installments with a down payment of at least $ _________________
and the balance secured by a mortgage against the second residence.
However, if the purchase price is paid in installments, and if the
second residence is subsequently sold by _________________ [transferor
spouse ], _________________ [transferee spouse ] shall at that time
immediately pay the unpaid balance of the purchase price of the second
residence, including any unpaid interest on that price.
[Continue with the following: ]
[Optional Provision ]
Occupancy of Present Residence Pending Purchase of Second
Residence
4. Until the second residence is purchased, but not beyond
_________________ months from the date of this Agreement,
_________________ [specify rights to live in present residence, e.g.,
_________________(transferor spouse ) shall have exclusive occupancy
of the family residence without payment of any rent for the occupancy
or Husband and Wife shall each have the right to occupy the family
residence jointly with each other].
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I hope that this information, although voluminous, helps you sort out
the options that exist for you in dealing with your home.
If you require any clarification, please bump the “CLARIFICATION”
button and ask away. I will get back to you as quickly as I can.
Best of luck to you in resolving this problem.
Weisstho-ga
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