12 Dec What is my home’s cost basis after a divorce?

Q. My ex purchased the family home in 1989. I moved into the home in 1994 and my name was added to the mortgage in 1997. We divorced in 2010 and I took out a loan on the home in my name. I then sold the home in 2019. How would the cost basis be calculated?
— Divorced

A. You can probably turn to your divorce agreement for the answer.

When people divorce, assets and debts accumulated during the marriage are subject to “equitable distribution,” or what is essentially the fair allocation of them, said Jeralyn Lawrence, a family law attorney with Lawrence Law in Watchung.

She said the marital home is often one of the most valuable assets maintained by divorcing parties.

With certain exceptions, the value of a home purchased during a marriage will be shared by the parties, she said.

“While many of our clients believe that assets and debts are automatically divided equally — 50/50 — in reality, New Jersey courts have broad discretion to determine a fair, and sometimes unequal, allocation,” she said. “There is no precise formula, but instead, a list of factors that must be analyzed and weighed under such circumstances.”

Lawrence said in some cases, the parties bring personal, pre-marital assets to the marriage. Generally speaking, premarital assets — and debts — are immune from equitable distribution, meaning that the other spouse will have no right or no obligation to share in them in the event of divorce.

This does not mean, however, that a premarital home or another exempt asset cannot be used to negotiate or resolve issues incident to divorce, she said.

In your example, it appears you kept the house as part of your settlement agreement.

“The parties’ respective interests are likely provided for in the settlement agreement itself,” Lawrence said. “Thus, the date upon which the non-titled spouse was added to the mortgage is irrelevant, as it appears that he/she obtained the residence free and clear of any post-divorce interest of the originally-titled spouse.”

Assuming you and your ex agreed on a buyout of the residence as part of the divorce, there is generally no recognized gain or loss on the transfer, Lawrence said.

“For this reason, the basis of the property will likely remain the same as it was prior to the transfer,” she said.

It would make sense for you to discuss this with your attorney, who hopefully worked with a certified public accountant to consider the future tax implications of your divorce settlement.

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This story was originally published on Dec. 12, 2019.

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