My wife (US citizen) divorced me (US Citizen) and, as part of the divorce settlement, I was required to transfer title to the house to her in exchange for a "legal charge" that gives me 50% of the proceeds upon house sale in 3 years. This is a standard procedure in UK divorces. How would the IRS view this? I cannot find anything in IRS regs of something that would be equivalent to the "legal charge". It almost seems that, as sole owner, she will take on 100% of the US capital gains tax liability (a disaster and one that might motivate her to renounce US citizenship), but that what I receive will simply be "assets transferred incident to divorce" and be non-taxable (at least as far as the US is concerned). Alternatively, could she be able to deduct the legal charge from her capital gains? Would the proceeds I receive be subject to US capital gains (but without the $250000 exemption ?!!). I tried to argue that it would be much better for everyone if we just keep the house in joint ownership so we could simply use the $500,000 worth of capital gains exemption upon sale and we both avoid nearly all US CGT. Her UK lawyer didn't understand what I was talking about and refused to modify the boilerplate consent order. Thanks!
