The basis of property transferred in a divorce proceeding carries over from one spouse to the other. Therefore, it is important to consider not only the value of property received, but also its tax basis. The recipient of appreciated property must pay tax on its inherent appreciation when it is later sold. This future liability should be recognized, quantified, and properly reflected in the divorce settlement.
Gift tax consequences can be avoided if the transfers are made under the terms of a qualifying written agreement between spouses.
