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Section 1031 exchanges and divorce

On Behalf of | Jun 29, 2022 | Divorce |

When couples in Texas decide to divorce, property division can be one of the most significant issues in the legal process. Especially for couples with significant assets, the financial and practical effects of divorce can linger far long after the emotional impact has faded. When couples own real estate, whether a marital home or an investment property, they may have difficulty not only reaching a fair division of the estate but also determining how to handle the property as part of the divorce settlement.

Handling real estate in a divorce

There are several ways to deal with real estate. In some cases, one partner may keep the home or property and buy out the other partner’s interest. If the property is mortgaged, this may require refinancing the mortgage in one partner’s name only. If the couple owns more than one property in a high-asset divorce, one spouse may leave the marriage with one of the homes while the other spouse retains the other. In all cases, the transactions and any mortgages must be properly recorded. In other cases, the couple may sell the property and divide the proceeds and responsibilities for any outstanding taxes.

IRC Section 1031 exchanges

In some cases, divorcing couples may be subject to capital gains taxes, especially if they are putting an investment property with significant appreciation on the market. One option may be an exchange governed by IRC Section 1031, or a like-kind exchange, in order to take advantage of a potential tax deferral of capital gains on the investment property.

Divorce can be a stressful financial time, so the postponement of the capital gains tax burden with a 1031 like-kind exchange may be an appealing option for successful couples. This option provides a deferral of taxes as long as the proceeds are invested into a new investment property, which can be an excellent choice if at least one partner wants to continue in real estate investment.