Transferring assets for divorce via joint account

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Topic Author
Beverage
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Joined: Thu Jan 17, 2008 2:54 am

Transferring assets for divorce via joint account

Post by Beverage »

Asking for a friend, who reached an agreement on asset division with her spouse before they divorce.

If my friend transfers equity assets from her own brokerage account to a newly created joint account, then her spouse transfers the assets to his individual brokerage account, would this quality as a taxable event?

Since they are still married my belief is no, it would not. Does that sound right to more knowledgeable folks here? Or would this count as a gift?
lostcoast
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Re: Transferring assets for divorce via joint account

Post by lostcoast »

Good question. I hope someone has a good reference to answer this very question as it came up recently at the weekly bocci ball get together.
exodusNH
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Re: Transferring assets for divorce via joint account

Post by exodusNH »

Beverage wrote: Fri May 20, 2022 8:02 pm Asking for a friend, who reached an agreement on asset division with her spouse before they divorce.

If my friend transfers equity assets from her own brokerage account to a newly created joint account, then her spouse transfers the assets to his individual brokerage account, would this quality as a taxable event?

Since they are still married my belief is no, it would not. Does that sound right to more knowledgeable folks here? Or would this count as a gift?
They should be able to transfer in kind.
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mmse
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Re: Transferring assets for divorce via joint account

Post by mmse »

If they can agree on everything, they should consider hiring a mediator, that is, a lawyer specializing in formalizing of amicable divorce cases. These services are quite economical.

IRA custodians allow special IRA transfers "due to divorce". IRA transfer is a good way to buyout/balance-out a current 401k and avoid expensive QDRO. For details, search for "Transfer of IRA Holdings Due to Divorce Form"

This also may be relevant, search for "divorce":
http://www.law.cornell.edu/uscode/text/26/424#c_4
http://www.law.cornell.edu/cfr/text/26/1.424-1#c_1_iv
Last edited by mmse on Fri May 20, 2022 8:56 pm, edited 2 times in total.
sls239
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Re: Transferring assets for divorce via joint account

Post by sls239 »

There are special forms you fill out to do this kind of thing.

I will just add that the value of something on which taxes will be due when it is sold might be different for the two different parties (because different people can have different tax rates) and might be different compared to other assets that would not be taxed when sold.
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Cobra Commander
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Re: Transferring assets for divorce via joint account

Post by Cobra Commander »

I transferred securities to DW with Fidelity and there was nothing I needed to do come tax time. The form required a medallion signature though which is getting harder to get these days as I found out when I tried to open a treasury direct account.
THY4373
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Re: Transferring assets for divorce via joint account

Post by THY4373 »

My ex and I did all our transfers 401k/IRA/Taxable after divorce was finalized. There were no taxable events. The taxable securities were transferred directly from her taxable account at our brokerage to mine at same brokerage. There was a form for this and I think we had to attach our property division agreement (but it has been a few years). The stocks were moved over and my ex's tax basis was moved along with them. No taxes were paid on anything. Very easy really. No need for medallion guarantee in our case but perhaps because we were at one brokerage.

Personally if they are cooperating I recommend the collaborative divorce process as it worked great for my ex and I.
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Beverage
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Re: Transferring assets for divorce via joint account

Post by Beverage »

Thanks for all of the responses.

This link (from quietseas above) seems to say that the transfer does count as a gift, since the transfer "is related to the cessation of the marriage": https://www.law.cornell.edu/uscode/text/26/1041

If someone has a different interpretation please let me know.

I will suggest a mediator but I think they may be past this point since the transfers have already been completed.
JDave
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Re: Transferring assets for divorce via joint account

Post by JDave »

My advice is this is the sort of situation where paying for professional help is worth the cost, rather than fishing for free advice on an internet forum
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ResearchMed
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Re: Transferring assets for divorce via joint account

Post by ResearchMed »

Beverage wrote: Mon May 23, 2022 12:30 pm Thanks for all of the responses.

This link (from quietseas above) seems to say that the transfer does count as a gift, since the transfer "is related to the cessation of the marriage": https://www.law.cornell.edu/uscode/text/26/1041

If someone has a different interpretation please let me know.

I will suggest a mediator but I think they may be past this point since the transfers have already been completed.

IANAL.

I understood from the first post that this was between two people currently married, "before a divorce", and not between former spouses.

And I thought that linked section stated that no gain/loss "shall be recognized" for a *former* spouse if the transfer is "incident to the divorce".
(And below, there is explanation of "incident to divorce".)

This is strictly a DIY divorce?

To repeat: IANAL.

RM
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Topic Author
Beverage
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Re: Transferring assets for divorce via joint account

Post by Beverage »

(edited to remove some confusion on my part)

Yes, this is before a divorce. It seems clear that there is no gain involved. I find the language in section (b) confusing though, to determine whether the transfer constitutes a gift.
Last edited by Beverage on Mon May 23, 2022 10:11 pm, edited 1 time in total.
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ResearchMed
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Re: Transferring assets for divorce via joint account

Post by ResearchMed »

Beverage wrote: Mon May 23, 2022 2:04 pm Yes, this is before a divorce, but "26 U.S. Code § 1041" says that incident to a divorce includes "is related to the cessation of the marriage".
They need to get legal advice if they want to be sure.

However, (AND I AM NOT A LAWYER!) I understood that to be for after a divorce/dissolution.

I have not read the entire relevant section of the code, and -->> IANAL. :wink:

RM
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