Tax Liens Survive Transfer of Marital Home from Husband to Wife

Posted on July 23, 2018

In a recent case, a wife who had unpaid employment tax liability due to the IRS from her sole proprietorship business transferred her one-half interest in the marital home to her husband. The deed transferred the property from both husband and wife as tenants by the entirety to the husband individually. The deed also stated that the transfer was “by way of gift and without any consideration other than for love and affection.” The couple likely chose this language in the deed in order to avoid any tax on the transfer of the property in Indiana. Because the wife basically had no remaining assets, the IRS came after the husband for the wife’s unpaid liability arguing that the tax lien that attached to the wife’s interest in the marital home survived the transfer to the husband. Essentially, the IRS was trying to collect the wife’s liability from the husband’s interest in real estate formerly owned by the wife. The husband argued that he was a “purchaser” who paid full value for the property. If that were the case, he could argue that he took the property free and clear of the tax lien if he was not aware of the tax lien. Unfortunately, the husband and wife could not provide any proof that the husband was a “purchaser,” especially because the deed specifically stated that he was not a “purchaser.” The husband and wife also argued that the husband’s payment of some of his wife’s tax liability in the past qualified him as a “purchaser” of the property. However, the Court held that the past payment of money unrelated to the transfer of the property in issue did not make the husband a “purchaser.” The Court ultimately held that the tax lien survived the transfer of the wife’s interest in the marital home to her husband and that the tax lien continued to attach to the one-half interest in the property formerly owned by the wife. Does your spouse owe money to the IRS? Has he or she transferred an asset to you to avoid the payment of taxes? Call us, we can help.