When a married couple turns to a postnuptial agreement, it’s usually out of a desire for clarity, protection, and a roadmap for what might lie ahead. But beneath the surface of fairness and mutual trust is a layer of tax law that can subtly shift outcomes. While a postnup is not a tax document, its terms often interact with federal, state, and capital gains rules in ways that can benefit, or bite, you later. Understanding the tax side of postnuptial agreements is part of drafting wisely. What tax implications should I know when drafting a postnup? And, should I hire a tax professional to help me draft a postnup? Continue reading to find the answers to your questions and to learn more about how taxes can affect postnuptial agreements.
The nonrecognition rule: transfers between spouses
One of the most important rules for married couples is found in Section 1041 of the Internal Revenue Code. Under this statute, a property transfer between spouses, or one “incident to divorce,” generally does not trigger recognition of gain or loss. In other words, shifting ownership from one spouse to the other under a postnup typically won’t create an immediate tax liability (§ 1041 I.R.C.). But that protection isn’t unconditional. The spouse receiving the property takes on the original basis (or “carryover basis”) rather than resetting at fair market value. And because § 1041 limits its relief, certain transactions, for example, transfers between spouses where one is a nonresident alien, may lose that shelter.
When tax trouble can sneak in
Even with § 1041 guarding many spousal transfers, postnup terms can still produce tax traps if not drafted carefully. One common risk arises when the property in question has appreciated significantly. Though transferring it under § 1041 may avoid taxation at that moment, the receiving spouse bears the original cost basis, meaning a future sale could generate a large capital gains tax obligation. Another vector is the risk of being treated as a gift. If portions of a postnup’s transfer of assets or entitlements appear gratuitous or disproportionate, the IRS might view them as gifts. This is particularly true if the transfer lacks reciprocal consideration or appears to exceed standard marital-sharing expectations.
A third concern is spousal support and alimony. Because the Tax Cuts and Jobs Act eliminated the deduction for alimony for divorce agreements executed after December 31, 2018, any postnup’s support clauses must be aligned with those rules to avoid confusion and unanticipated tax consequences. Finally, in community property states or states with particular tax treatments of income or capital gains, a postnup that seeks to reclassify assets or income may conflict with how state or federal tax law allocates gains or losses unless the drafting is particularly mindful.
Best practices for tax-savvy drafting
To minimize these risks, here are drafting habits that help a postnup hold up both legally and tax-wise:
- Be explicit about basis. Clarify that transferred property is subject to the carryover basis rule, and define how liabilities and debts are allocated.
- Avoid gratuitous transfers. If a transfer feels like a gift in disguise, it can attract scrutiny or gift-tax consequences.
- Carefully time transfers. When a clause triggers upon separation or divorce, confirm that it aligns with § 1041’s “incident to divorce” rules (i.e., within one year or tied to the termination event).
- Integrate estate planning. Because property given now may lose a full step-up in basis at death, balance the needs of marital fairness and long-term tax efficiency.
- Require tax review. Building in a clause allowing or requiring a tax advisor to review the agreement can catch unexpected traps before signing.
- Disclose all relevant data. Full transparency regarding basis, appreciation, and encumbrances reduces future claims of unfair surprise.
A short illustrative scenario
Imagine one spouse owns stock purchased years ago at a low basis. The postnup gives that stock to the other spouse under a division clause. Under § 1041, the transfer won’t trigger tax immediately. Yet the new owner carries the original basis, so when they later sell, they may pay significant capital gains tax. If that risk was never discussed or accounted for, it can feel like a hidden loss. A well-drafted clause might anticipate that and adjust other allocations to compensate.
When to bring in tax expertise
If significant assets, business interests, or cross-state holdings are involved, always include a tax professional in your planning process. They can confirm whether a clause qualifies under § 1041, flag gift or income tax issues, and ensure your postnup aligns with your broader estate and financial planning goals. If anything about your personal financial situation makes you wonder about the tax implications, do not hesitate to discuss your concerns with a tax professional. If you choose to hire an attorney to draft your postnup, which is highly recommended, make sure that your attorney has experience in tax law as well as postnuptial agreements. There’s a strong peace of mind that comes with signing a well-thought-out postnup. Don’t let surprising tax penalties decrease the value of the assets you’ve planned to protect.
Ms. Taylor earned a Bachelor of Science degree in Justice Studies from Arizona State University in 1995. She obtained her Juris Doctor degree in 2014 from Arizona Summit Law School. In 2018, after more than 20 years managing multimillion dollar construction and real estate contracts, Ms. Taylor retired from the City of Phoenix. In 2022, she was licensed to practice law in the State of New Mexico, as well as federal law (Immigrations, Bankruptcy, and Securities) in all 50 states. Attorney Taylor is a zealous advocate with more than a decade of experience working in Immigration, Bankruptcy, Real Estate, Social Security Disability, Estate Planning, Business Formation, Debt Settlement & Collections, Contracts, and Family Law. She is also a certified Mediator.
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