Transfer of assets to spouse; taxable income?

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Latest post 01-15-2010 3:48 PM by Taxagent. 10 replies.
  • 01-13-2010 7:49 PM

    • Lora4
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    Transfer of assets to spouse; taxable income?

    Hello, I hope someone can answer my question.  We have a stock account that is held jointly as husband and wife (joint tenants).  We would like to transfer the title to one spouse's name as sole owner, as a strategy to discourage a potential (frivolous) civil suit.  Would the spouse who receives this asset have to pay tax on the asset?  We have always filed jointly and will continue to file jointly.

    Thank you. 

  • 01-13-2010 8:46 PM In reply to

    • Drew
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    Re: Transfer of assets to spouse; taxable income?

    Unless one of you is a foreigner there should be no federal tax issue.

     

    However a transfer of assets so as to defeat a creditor may run afoul of laws as to fraudulent conveyance and could be reversible --so before you try a cute move, ask competent counsel first. Some moves may well work--but you need take care. There may be better ways to encumber your assets--ask counsel.

    As an aside, if your spouse has a bad day you may have a devil of a time to get your stuff "back."



  • 01-14-2010 1:28 AM In reply to

    Re: Transfer of assets to spouse; taxable income?

    Transfers between spouses do not result in income tax consequences.

    However, you really ought to check with an attorney regarding whether your plan will work as you hope. In general, gratutitous transfers after the claimed debt arises can be set aside as a "fraudulent conveyance." That would return the stock to joint title and allow the creditor to reach it if he/she gets a judgment.

    Understand that frivolous generallly means that the case as plead in the complaint completely lacks any legal foundation. What most non-lawyers think of a frivolous is not really frivolous. It is instead perhaps a weak case, but one with at least some legal basis to it. However, if the claim is truly frivolous, then it is generally easy to get rid of it at the start with a motion to dismiss. If you can do that, you really don't need to be moving assets around.

  • 01-14-2010 9:22 AM In reply to

    • Lora4
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    Re: Transfer of assets to spouse; taxable income?

    Thank you for your reply.  Taxagent, you said a gratuitous transfer after the claimed debt arises may likely be considered a fraudulent conveyance.  Would this also be true if there is no civil case yet?  and no judgement?  If years have gone by since the debt arose, does a person not have the right to transfer his/her assets freely, as he or she wishes, in the meantime?  

    Thank you.

  • 01-14-2010 9:49 AM In reply to

    • Drew
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    Re: Transfer of assets to spouse; taxable income?

    Thats not quite what you post.  If you moved stuff around before the debt was incurred there would be no problem.

    If you moved stuff around after the debt was incurred you can run some risk that your motivations were to defeat the creditor --and the closer in time you make the more to some action filed by creditor the more it might smell and to move right at time of action against one of you sure invites flunking the smell test.

    Now some moves may work-(examples only--confirm with your counsel as to specifics which might work in your fact pattern .)  -for example

    1.a transfer of real estate to spouse alone that is recorded may time out as being reversible after say 1 year as in theory the other side is on public notice of the transfer .

    2. You use the assets to pay down existing bonafide debt --and not in tainted by being just ahead of claim.

    2.1 You use the  account assets to buy something that is harder to attach.

    2.2 you encumber the account somehow with something that is ahead of the other issue as to priority 

    3. At least in my state a significant  gift to child in a UTMA would not be reversible against child.

    4. As an aside if 'I" had a problem but my spouse cleaned out  95% of the joint account  (ignoring tax issues) so as to fund a 529 plan for a child or grandchild in an amount that was reasonable to do-it might be hard to unwrap that one.

     

    Note--the more likley you"know" the old debt has heated up and the more your move can be tied to same the more it looks like you have dirty hands.

    How stale is the debt--is it beyond the statutue of limitations? That may be a good defense, if so..



  • 01-14-2010 1:49 PM In reply to

    • Lora4
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    Re: Transfer of assets to spouse; taxable income?

     

    Drew, thanks again for your time.  I guess my confusion relates to when the debt was incurred.  If a debt is incurred and disputed thereafter, there will be a period of time, perhaps years, during which the dispute will be resolved.  In the meantime, is it fair game to transfer assets?  It seems to me it should be, especially if there is no legal judgement and one can never be certain of either winning or losing a pending case.  

  • 01-14-2010 2:01 PM In reply to

    Re: Transfer of assets to spouse; taxable income?

    Lora4:
    If a debt is incurred and disputed thereafter, there will be a period of time, perhaps years, during which the dispute will be resolved. In the meantime, is it fair game to transfer assets? It seems to me it should be, especially if there is no legal judgement and one can never be certain of either winning or losing a pending case.

    The problem is, that once you are aware of the claim, transfers without adequate consideration are potentially subject to being set aside as a fraudulent conveyance. The idea is that the transfer is made to defeat your creditors, and the law is designed not to make it easy for you to avoid debts you owe. Once the debt is incurred, even if it takes a long time to resolve it, those transfers may be a problem. But the details matter. You'd need to discuss with an attorney in your state exactly what the law is there on fraudulent conveyances and similar doctrines that creditors can use to recover assets to collect a judgment.

  • 01-14-2010 9:21 PM In reply to

    • Lora4
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    Re: Transfer of assets to spouse; taxable income?

    Thank you Taxagent.  You've been very helpful.

  • 01-15-2010 1:23 PM In reply to

    Re: Transfer of assets to spouse; taxable income?

    Fraud is decided based on INTENT, and you have already expressed an&nbsp... to avoid the bill.   Judges aren't stupid.

  • 01-15-2010 1:58 PM In reply to

    Re: Transfer of assets to spouse; taxable income?

    Oops, the msg board loves "&nbsp"....!

    It should read that you already expressed that intent to fraudulently transfer assets to avoid payment! 

  • 01-15-2010 3:48 PM In reply to

    Re: Transfer of assets to spouse; taxable income?

    Understand that the term "fraudulent conveyance" is a bit misleading. It does not require actual fraud. Under the fraudulent conveyance statutes of most states, a transfer made with inadequate consideration while debts are owed may be set aside even without an intent to defeat creditors. Under these statutes, an intent to defeat creditors will also allow a transfer to be set aside. But an intent to defeat creditors is not criminal and does not meet the usual definition of fraud, either. It would have been better if these statutes had been given another name so that folks would not think actual fraud is involved. These statutes are simply a way to ensure that creditors can collect what they are owed and should be viewed in that light.

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