Capital Gains Can Be Joker in Divorce Deck

Article excerpt

Q: Early in our more than 20-year marriage, my husband and I purchased investment land at a resort on a lake for $50,000. The land was in his name. At the time of our divorce two years ago, this property was appraised for $500,000.

We have no children. We agreed on a 50-50 division of all assets except this property. Because I knew it would appreciate more, I wanted it, and my husband agreed to let me buy him out for $150,000 if I waived my rights to alimony. So I went to the bank, borrowed $150,000, which I paid my husband, and I waived alimony.

As explained to me by my lawyer at the time, if I sold the property, I would pay capital gains on everything above what we initially paid for the property -- $50,000 -- and what I paid my husband -- $150,000 -- a total of $200,000. I sold the property this year for $600,000, repaid the loan and invested the remaining $450,000. My broker told me that he thought I would have to pay more capital gains taxes than anticipated. Did I make a mistake?

A: If you borrowed money to "purchase" a marital investment asset from your spouse in a divorce settlement with the expectation that your cost basis in the property would increase and your capital gains taxes on sale would decrease, the answer is "yes. …