Like Kind Exchange in Divorce

[10SorTAX]

TP recently divorced, and she and ex will be selling real estate they held in a 1031 Like Kind Exchange. Can she take her half of this deferred gain and do another 1031 exchange, even though the original documentation was done in both of their names?

[jainen]

>>Can she take her half of this deferred gain and do another 1031 exchange<<

Maybe, but remember that 1031 is one section of the code where substance-over-form doesn't apply. It must be done with the paperwork exactly right, so be sure to use an EXPERIENCED facilitator. With that in mind, 1031 can be extremely flexible.

The biggest issue here is that you can't use 1031 to change title. A lot of people get tripped up by putting replacement property into a trust or LLC. The same problem blocks BOTH spouses going from joint to separate title too. It doesn't matter what good reasons or intentions they have. The facilitator will want them to identify and acquire all replacement properties in both names. From there (I guess) they can probably make a division pursuant to the court order, but it would surely be a lot cleaner to hold all the new properties jointly for a couple years with a real estate management company running things.

I recommend you not offer advice on how to structure the exchange. Leave this one to the lawyers.

[10SorTAX]

Yes, I will leave it to the experts. Thank you so much for your quick response, Jainen.

[jainen]

>>leave it to the experts<<

I may be misreading your original post, "real estate they held in a 1031 Like Kind Exchange." If it is property they acquired at least a year or two ago, the facilitator might want to "drop and swap" by making the division before the exchange. Courts have started to accept this in specific cases. But they are generally not to be cited as precedent, and come in the context of increased scrutiny by the IRS.

And of course, always pay close attention to your conflict of interest concerning divorced couples and co-owners.