There are several ways of owning property after marriage, but keep in mind that they may vary from state to state. Here are the most common:
- Sole Tenancy. Ownership by one individual. At death the property passes according to your will.
- Joint Tenancy, with right of survivorship. Equal ownership by two or more people. At death property passes to the joint owner’s. This is an effective way of avoiding probate.
- Tenancy in Common. Joint ownership of property without the right of survivorship. At death your share of the property passes according to your will.
- Tenancy by the Entirety. Similar to Joint Tenancy, with right of survivorship. This is only available for spouses and prevents one spouse from disposing of the property without the others permission.
- Community Property. In some states, referred to as community property states, married people own property, assets, and income jointly; that is, there is equal ownership of property acquired during a marriage. Community property states are AZ, CA, ID, LA, NV, NM, TX, WA, and WI.
- What are the tax implications of divorce? After divorce each individual will file their own tax return. However, there are several areas where transactions between former spouses can result in tax consequences. The most common areas are:
Child support is not deductible by the payer and is not taxable to the recipient. A payment is considered to be child support if it is specifically designated as such in a divorce or separation agreement or if it is reduced by the occurrence of a contingency related to the child (such as attaining a certain age).
Alimony is deductible by the payer and is taxable to the recipient. Alimony is a payment made pursuant to a divorce decree other than child support or designated as something in the instrument as other than alimony. Similar treated is accorded separate maintenance payments made pursuant to a separation agreement. In order to qualify, payments must also cease upon the death of the recipient and must not be front-loaded.
Property settlements are not taxable events when pursuant to divorce or separation. Transfers of assets between spouses in this event do not result in taxable income, deductions, gains or losses. The cost basis of the property carries over to the recipient spouse.