Q: My husband and I separated in November 2013. I have to wait until November to file for an official divorce.
I just got a notice in the mail that the property where my husband is living has property taxes overdue. I have a signed separation agreement saying he is responsible for paying them, but my name is still on the property. Will having the property taxes overdue screw up my credit score? What can I do if he refuses to pay them?
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A: Any delinquency, no matter how small, can affect your credit score. That is especially true these days, because lenders are still scared and hurting from the mortgage meltdown. Even so, I have been reading recently that some large mortgage lenders are seriously considering lowering their standards so more consumers will be able to buy or refinance.
Let me ask you the obvious question: Can you pay the real estate taxes? That clearly will solve your concerns, and when the house is sold, you will have the right to be reimbursed before any of the sales proceeds go to your former husband.
But let me ask another question: If there is a mortgage on the property, why isn’t the lender paying the real estate taxes? Is the mortgage being paid, or is it also delinquent? And finally, is there any equity in the house?
I ask all of these questions because there are different steps you should take depending on the answers. For example, if the house is underwater, have you and your husband considered discussing a short sale with the lender? If the mortgage payments are not being made, has anyone contacted the lender to try to work out a modification or a moratorium?
And before you get a divorce, have you reached an amicable agreement with your husband? Will the property be sold? Will one of you end up owning it? And if so, how will the existing mortgage be handled?
I can only raise issues, because I do not know all of the facts of your situation. Still, as I have written on several occasions, make sure your divorce attorney is versed on real estate issues. I have had a number of clients who did not get good real estate advice from their divorce attorney, which ended up costing them a lot of unnecessary dollars.
For example, in most states, a transfer of property between husband and wife (or pursuant to a divorce agreement) is exempt from the state’s recordation/transfer tax. If your separation agreement is silent, or if you wait until you are divorced before transferring the property, you may have to pay those taxes, and in some states, it can be very costly.
Q: We inherited a seven-unit building from our dad, who passed away last December. There was no mortgage, and we sold it for $700,000. How much tax are we liable for?
A: This is really a question for an accountant. But oversimplified, you are entitled to claim the “stepped-up” basis. In other words, the value of the property on the date your father died becomes your basis for tax purposes. If the property was assessed (or appraised) at $700,000 when he died, and you sold it for that amount, you do not have to pay any capital gains tax. Of course, if you sold it for more than that, you will have some tax to pay.
I am responding only to the capital gains tax; you may have to pay inheritance taxes.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; [email protected].