I am expecting a settlement check from insurance company for total $40,000. I am legally separated since January 2016. At the time of legal separation we made an agreement that she will get $60,000 from me because our house is worth 120k so she will get half of it. So now time has come where I can pay her 40k out of 60k. What is the best way I can give this to her? ===>In many cases, the distribution of property often is the most important aspect of a divorce or separation agreement. Property transfers included in a divorce decree are subject to income taxes or gift taxes, respectivelyUnless they meet the requirements of Sec. 1041 or Sec. 2516.Property acquired by the spouses during their marriage (e.g., family home, retirement plan assets) generally qualifies as marital property. With the exception of qualified retirement plan assets covered under the Employee Retirement Income Security Act , state laws ultimately govern the division of marital assets in a divorce, and state laws differ radically on who gets what when the marriage ends. The division of assets differs according to whether the divorce takes place in an equitable distribution state or in a community property state. Currently, 9 states are community property states, and the remaining 41 are common law states ,
Should I be worried about gift tax or she should worry about gift tax? I understand these type of settlements are not income taxable but when I give to her as part of our separation agreement, does she need to worry about any tax consequences?=====>> It is usually important that any property transfers between the divorcing spouses occur under circumstances that do not produce taxable gain or gift tax liability. A transfer of marital property rights under a property settlement agreement that was incorporated into a divorce decree is not subject to gift tax .no estate tax marital deduction is allowed for transfers to a former spouse, the transferor also will not want the transfer to be includible in his or her taxable estate. Under the general rule a transfer of property to a former spouse incident to divorce will not cause the recognition of gain or loss. A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ceases or is ?related to the cessation of the marriage,? which requires that the transfer: Is pursuant to a divorce or separation instrument, and Occurs not more than 6 years after the date on which the marriage ceases. A divorce or separation instrument includes a modification or an amendment to the decree or instrument.