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Do I have to pay taxes on property received through the division of marital property in a divorce?

In the course of divorcing my wife, I received an apartment and some cash, such as savings, through the division of marital property. Is tax also imposed on property divided in this way during a divorce? I am wondering whether I have to pay something like gift tax or income tax. Even though this is merely a settlement of property arising from the divorce, I am wondering whether I need to file a tax return, so I am submitting this inquiry.

Divorce consolation money

Division of marital property in divorce

Answer

Published: 2023-03-07

Author : Kuk Il KIM

In general, no tax is imposed on property received through the division of marital property in a divorce.

Because the division of marital property is a division of joint property that the couple formed together during the marriage, it does not constitute a gift, so no gift tax arises.

In addition, because it does not constitute income under the Income Tax Act, income tax is likewise not imposed.

However, if you receive a transfer of ownership of real estate during the division of marital property, an acquisition tax, a local education tax, and a special rural development tax may be imposed under the Local Tax Act.

However, because such a transfer of real estate is regarded as part of a simple division of property, capital gains tax is not imposed.

According to recent case law, even if real estate held in each spouse's name is mutually transferred, this is not regarded as a transfer for consideration.

In addition, even if the party obligated to divide the property is relieved of that obligation as a result of the division, the economic benefit arising from this is not regarded as a 'transfer of assets accompanied by consideration' that is subject to capital gains tax.

The only tax that arises from the division of marital property in a divorce is certain local taxes associated with the transfer of real estate, and gift tax, income tax, and capital gains tax generally do not present a problem.