Source: http://www.gordonfamilylaw.com/blog/?offset=1494160808327&category=Tax+Issues
Timestamp: 2019-04-22 06:06:01+00:00

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Are there different rules for property division in a divorce if my spouse is not a US Citizen?
Experienced Bay Area family law attorneys will inform their clients if they are transferring property to a non-resident alien spouse.
Yes. A transfer to a non-resident alien spouse is specifically excluded from §1041 which means that IRC §1041 (and the rule of no tax treatment) does not apply if a transfer is TO a non-resident alien.
Non-taxable treatment does apply if the transfer is FROM a non- resident alien to a US resident or citizen. These transfers become fully taxable subject to capital gains/losses.
Further complications can arise if a non-citizen spouse ceases to be considered a US resident before the property is fully divided and or an equalizing note is fully paid.
What if the property that I want to transfer to my spouse produces income?
If you have property such as accounts receivable, deferred compensation, pension plans, these types of property may have an “income” component. The common recommendation is to reserve disposition of these assets until you know the details about the property and then to divide the property between the parties such that each spouse reports his or her share of the income when received. You can structure this as contingent spousal support or an allocation of community income which is similar to the division of stock options.
Will I be taxed on when I transfer property to my spouse in a divorce?
Experienced Bay Area family law attorneys will advise clients about the tax consequences in a divorce.
Section § 1041 of the Internal Revenue Code says that if you transfer property from one spouse to another during marriage or incident to divorce, then there is no recognition of tax gain or loss.
This is true regardless of where the property is located. The no tax transfer rule includes any property, real or personal, tangible or intangible can be transferred tax free, including an promissory note, life insurance, pension buyout payment.
There is no limit on the amount or type of property that spouses can transfer to each other without incurring tax.
The IRS allows for non-recognition of gain/loss between spouses and ex-spouses up to one year after the date of termination of marital status and transfers within six years of the divorce may qualify if the transfers are “incident to the divorce”.
The transfer must be to or “on behalf of” a spouse or former spouse. A transfer to a third party on behalf of a spouse qualifies for §1041 treatment if the transferee spouse requests or ratifies the transfer in writing. The writing must state that the parties intend §1041 to apply and the transferor must receive the document before filing his or her first tax return for the year of the transfer. Approved writings include (1) a divorce or separation instrument, (2) the transferee’s written request and (3) the transferee’s written consent or ratification which includes a reference that the transfer is intended to qualify for non-tax treatment under IRC §1041. A transfer will be “on behalf of” the other party if it satisfies an obligation of the transferee spouse.
Transfers More Than One Year After Judgment of Marital Termination. Transfers more than one year after termination of marital status will qualify for §1041 if they are “related to the cessation” of the marriage. If the transfer occurs within six years after the date on which the judgment dissolving the marriage was entered, the transfer is presumed to be “related to the cessation of the marriage”. If the transfer is more than six years after the termination of the marriage, it is presumed not to be related to the cessation of the marriage.
If you are concerned about timing problems you can solve them by creating a specific reference in your marital settlement agreement where you cite IRC §1041. The six-year presumption of “related to the cessation of the marriage” is different from a “transfer within one year of the marriage termination” which is mandatory and not a presumption. A transfer within the first year will be subject to §1041 rules no matter what business or other reasons are present.
The six-year presumption is rebuttable. For example, if there is a transfer three years after the marriage ends but it can be established that it was required for business reasons, the transfer may not be considered as one related to the cessation of the marriage.
After six years from the date of dissolution, the presumption that it is not related to the cessation of marriage may also be rebutted if it can be proven that it was to affect the division of marital property. While most transfers occur within 6 years, it is possible that the transfer may take longer due to extended litigation or delayed sale of property if there are minor children.
The information set forth in this Question and Answer is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding United States federal tax penalties that may be imposed on the taxpayer. The information was written to support the promotion or marketing of the matters addressed in this Question and Answer. All taxpayers should seek advice based upon the taxpayer’s particular circumstances from an independent tax advisor. The foregoing language is intended to satisfy the requirements under the regulations in Section 10.35 of Circular 230.
Can divorced parents of two kids both file head of household?
YES AS LONG AS THEY EACH HAVE A KID AND PASS THE BASE REQUIREMENTS FOR SUPPORTING THEM/% TIME, ETC.

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