Lawyers
Property Transfer and Sale in Divorce
During divorce proceedings, couples must divide their jointly held property, including real estate. This typically involves the family home and, depending on the circumstances, may include additional properties. A key question that arises in these situations is whether the transfer of property between spouses as part of a divorce constitutes a taxable real estate transaction. This article provides an overview of the legal and tax implications of selling or transferring property in connection with a divorce in Israel.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
Overview
When spouses decide to divorce, they must divide the joint property accumulated during their marriage. If they own an apartment or other real estate, they must dissolve the partnership in one of two ways: selling the property to a third party, or transferring or selling it between themselves. This decision should be based on economic considerations. However, because real estate transactions typically involve significant tax obligations, an important question arises: does the transfer or sale of property between spouses as part of divorce proceedings constitute a standard real estate transaction? If so, the selling spouse would be subject to capital gains tax and the purchasing spouse to purchase tax.
Property Transfer and Sale During Divorce Proceedings
Under the Real Estate Taxation Law, the transfer of rights in real estate between spouses does not constitute a real estate transaction and is therefore not subject to taxation for either party. This applies when the transfer — whether for consideration or not — is carried out pursuant to a court judgment. The transfer may be between the spouses themselves or between the spouses and their children. Accordingly, there is no reporting obligation to the tax authorities for this type of transaction. The primary action required of the spouses is to register the transfer of rights in the appropriate land registry.
Registering Property Rights in One Spouse's Name
As noted, the transfer of real estate in connection with a divorce is not a taxable event. Therefore, the parties need only ensure that the transfer of rights is properly registered. To complete the registration, the relevant documents must be submitted, including the divorce agreement ratified as a court judgment, confirmation of no outstanding debts from the local authority, and additional required documentation. Upon completion of the registration process, it is essential to obtain an updated registration extract to confirm that the transfer of rights has been fully recorded. If the property is not registered in the Land Registry (Tabu) but rather with the Israel Land Authority or a mortgage company, the registration procedure will be conducted through that body, and confirmation of the transfer will be obtained accordingly.
Is a Spousal Property Transfer Always Advantageous?
One might assume that transferring or selling property between spouses in a divorce is always advantageous, given the tax exemption for both parties. However, it is important to understand that when the spouse who acquired the property later decides to sell it, the original tax exemption no longer applies. At that point, the seller will be liable for capital gains tax as in any standard real estate transaction. Therefore, if one of the available exemptions from capital gains tax — such as the exemption for selling a sole residential apartment — does not apply to the seller at that time, the spousal transfer may have merely deferred the tax obligation rather than eliminated it.
Why Legal Representation Is Essential
Transferring or selling property between spouses during a divorce can be an ideal solution, as it does not constitute a taxable event. However, as discussed above, the acquiring spouse may face a future tax liability. Before making any decision regarding the sale or purchase of a shared residential apartment or other jointly held real estate, it is crucial to consult with an attorney who can thoroughly analyze the tax implications for each party. Our firm’s Real Estate, Planning, and Construction Department specializes in providing legal support for real estate transactions in Jerusalem and throughout Israel. The transfer of rights in real estate is not a simple technical procedure — it requires careful follow-up and reporting to various authorities. Even if you have been represented by a family law attorney who does not specialize in real estate, you can contact us to handle the transfer of rights. If you are in the process of dissolving a property partnership, we can ensure that the transfer of rights is completed according to the terms you have agreed upon.
We invite you to consult with us on all matters related to the transfer of property rights in connection with a divorce, including the associated tax implications.
The Real Estate, Planning, and Construction Department at Mor & Co. Law Firm brings extensive experience in both real estate transactions and planning and construction proceedings. Professional legal support is the guiding principle of our practice, ensuring that every transaction and procedure achieves the most efficient and favorable result for our clients. For assistance with real estate matters, contact us by phone at 02-595-3322, via WhatsApp at 050-441-1343, or through the online contact form below.