As if divorce isn’t unpleasant enough, New York State and New York City will have their hands out to collect taxes for the transfer of your apartment pursuant to a separation agreement. This can be a real bitter pill to swallow.
Transfers of real property are generally subject to transfer taxes if the consideration exceeds $25,000. But what if the transfer of your real property is pursuant to a divorce decree or separation agreement and not in connection with a sale to a third party? In New York, transfer taxes must still be paid.
Even though you are not technically putting your apartment up for sale, finding a buyer and directly exchanging the apartment for money, the transfer of your apartment from one soon to be ex-spouse to the other is still subject to the transfer taxes, which are generally calculated based upon the fair market value of the apartment.
The amount of the taxes can be hefty and an unwelcome surprise for the unwary. For example, the transfer of an apartment owned by the Husband (50%) and the Wife (50%) to the Wife with a fair market value of $2,200,000.00 would cost the Husband $20,075.00 in City and State transfer taxes and cost the Wife $11,000.00 for the “Mansion Taxes”.
In NYC, the rules regarding transfers of apartment pursuant to a divorce come from Section 23-03(d)(3) of Title 19 of the Rules of the City of New York. “A conveyance of realty from one spouse to the other pursuant to the terms of a separation agreement” is subject to tax. The NYC transfer form (NYC-RPT) directly address this type of transfer by requiring the filer to provide the following information: (i) the fair market value of the property; (ii) the existence of any unpaid mortgages; (iii) the percentage of ownership being transferred; and (iv) any alternate value assigned to the transferred interest that is contemplated in the separation agreement.
In NYS, the rules regarding this type of transfer come from Section 575.11(a)(10) of Title 20 of the New York Codes, Rules and Regulations. “A conveyance from one spouse to the other pursuant to the terms of a divorce or separation agreement is subject to tax.” While the NYS transfer tax form (TP-584) does not directly deal with this type of transfer like the NYC-RPT does, the State still requires the parties to calculate and pay transfer taxes. There is a rebuttable presumption that the consideration for the conveyance, which includes the relinquishment of marital rights, is equal to the fair market value of the interest in the apartment conveyed. As with the NYC-RPT, if the parties would like to assert that the value of the apartment is something different than the fair market value, then they must point to the value enumerated in the separation agreement.
In sum, while you may think you are getting swindled by your ex-spouse, NYS and NYC are there to deprive you a little bit more by subjecting you to transfer taxes.