Taxes and Divorce Transfers

Under Internal Revenue Code 1041, most transfers between spouses or former spouses in the context of a marital dissolution will be non-taxable.  However, there are some important exceptions. For example, this rule does not apply when the recipient spouse is a non-resident alien. Transfers between former spouses which occur more than six years from the date of the divorce will be taxable unless the taxpayer shows that they are incident to the divorce. And, a person cannot avoid paying taxes on a vested right to income by assigning the right to receive that income to his or her spouse.