Splitting property in a divorce

[pajoan]

A couple owns 2 rental houses, Her name is on the houses and the loans.

Divorced in August, and he was awarded one of the rental houses. He is refinancing in Jan of 2012. to put the house and loan in his name. The rental management co wants to know who gets the 1099 for this year. Not sure where to go with this. She is my client, so I want to be fair to her.

[joanmcq]

It depends. What state are you in? Property laws are determined by state.

[Pacun]

"It depends. What state are you in? Property laws are determined by state."

Joan is correct... the real question is... what state your clients and/or the property were in.

Depending on the state, these are a couple of scenarios.

The owner of the property should get the 1099 and depreciate the property. In this case, the wife should get the1099. ALSO, it should depend on who the check was made out to by the management company.

The management company should make the 1099 the same way they did the prior year up to August and then make another 1099 for the husband if the payments were made to him. Remember that the requirement for the Management Company is to issue a 1099 to whoever they paid.

If the wife gets the whole 1099, it will be fair that she pays taxes up on the amount received until august since she will be depreciating the property. The husband should deduct any expenses from August to the end of the year but he should not be able to depreciate the property since he is not was not the owner.

Now, if the wife wants to hit him half of the rental income from Jan-August and also assign full rental income from August to Dec, he should be able to depreciate the property at least from Jan to August when he was married to the owner (depending on the state).

[jainen]

>>Not sure where to go with this.<<

Why go anywhere? The rental management isn't your client, so they can't expect serious advice from you. Tell them to give it to the other guy.

Of course, your client will report income/expenses that apply to her, presumably until August. After that, she was NOT the owner, even though recorded title had not been updated. If you really want to go somewhere with this, just for fun, ask her lawyer whether there was any assignment of INCOME in the divorce, other than the property division.

[joanmcq]

Still haven't seen an answer as to state. If community property laws come into consideration, for example, in CA, her separate property is her separate income, unless comingled. And the community ends when the couple separates. However, in TX, separate property generates community income and the community doesn't end until the date of divorce.

In AZ, the community ends at the date of divorce, but separate property generates separate income.

And in CA, it doesn't matter how the darn title was held if the property was bought with community income. Probably the same in TX & AZ.

So again, unless you give us more info, you can't get a decent answer. Garbage in, garbage out.

[jasdlm]

Have you seen a copy of the Settlement Agreement? Usually, there is a section in the settlement agreement that addresses the division of income and deductions for the year of the split.

[pajoan]

Couple lives in Alaska, rental property is in GA.

[joanmcq]

Alaska allows you to opt into community property. GA is a sole property state. How was the property held? Was it hers from before the marriage? You probably need to ask your client some more questions.

And I agree with jainen, seeing a copy of the settlement would probably help.

[pajoan]

Thank you for your responses, The couple lived in GA when the house was purchased in her name only, They moved to Alaska later. I will ask to see the settlement and go from there.

Thank you all.