Is a Transfer of the House Between Spouses Subject to New Jersey's Realty Transfer Fee?

Usually not, as long as the timing fits. The NJ Division of Taxation lists a deed "Between husband and wife" and a deed "Recorded within 90 days following the entry of a divorce decree which dissolves the marriage between grantor and grantee" among the deeds the realty transfer fee does not apply to. Record the deed outside those rules and a transfer to a former spouse can owe the fee.

I'm Dennis Mark Interdonato, a REALTOR® and Master CDRE® with The Dennis Mark Group at Keller Williams Realty Ocean Living. When one spouse keeps the house in a divorce, the other usually signs a deed over, and the next question is whether the state takes a cut. I'm not an attorney, so here's exactly what the Division of Taxation publishes, and the questions to ask before the deed is signed. This is general information, not legal, tax or lending advice.

What is New Jersey's realty transfer fee?

The Division of Taxation describes it as a fee imposed on the seller of real property for recording a deed for the sale. It's based on the consideration recited in the deed or, in certain cases, the assessed value divided by the Director's Ratio. And it applies to every conveyance of title to real property in New Jersey unless the deed or transfer meets an exemption. The fee is paid to the county recording office when the deed is submitted for recording.

Which exemptions fit a divorce?

Two of the exemptions on the Division's list fit a divorce:

• A deed between spouses. The list reads "Between husband and wife, or parent and child." The Division's Civil Union Act page identifies this as the exemption in N.J.S.A. 46:15-10(j) for deeds recorded between spouses.
• A deed after the divorce, within 90 days. The list reads "Recorded within 90 days following the entry of a divorce decree which dissolves the marriage between grantor and grantee." The same page identifies this as N.J.S.A. 46:15-10(p).

That page also says both exemptions apply to civil union partners, including a conveyance between former partners under a dissolution decree.

Claiming an exemption takes paperwork. The Division requires an Affidavit of Consideration for Use by Seller, Form RTF-1, with any deed that claims a full or partial exemption.

What happens after the 90 days?

The Division's realty transfer fee FAQ answers this with an example. An owner who divorced many years earlier deeds a one-half interest to the former spouse for $8,000, and the former spouse takes on the original $200,000 mortgage. Is that exempt as a deed "In specific performance of a final judgment"?

The Division says no. Putting the terms of a separation agreement into a judgment of divorce doesn't change the agreement's "essential consensual character." In that example, the fee is figured on the $8,000 plus one-half of the remaining mortgage balance.

The Division adds that the specific performance exemption may be used when the judge orders the transfer to be made according to the judge's rulings. Whether that describes your case is a question for your attorney, and it's a good reason to put the deed date on the calendar as soon as the decree is in sight.

Does the over-$1 million fee follow the same rules?

Check it separately. On a deed with consideration over $1,000,000, the Division imposes a Graduated Percent Fee on top of the realty transfer fee, and it lists that fee's exemptions on its own form, RTF-1EE, which must be attached to every deed over $1,000,000. The Civil Union Act page says Form RTF-1 (grantor) and Form RTF-1EE (grantee, where applicable) are used when the exemptions are claimed. If your buyout figure is over $1 million, ask your attorney to review both forms.

Is the transfer taxed as income?

Generally not. IRS Publication 504 says no gain or loss is recognized on a transfer of property to your spouse, or to your former spouse if the transfer is incident to your divorce. A transfer is incident to the divorce if it happens within 1 year after the marriage ends, or if it's related to the end of the marriage, which Publication 504 describes as a transfer made under your divorce or separation instrument within 6 years after the marriage ends.

The spouse who receives the home takes over the same adjusted basis. That matters later, when that spouse sells. Here's how the home sale exclusion works in a divorce.

Does signing the deed take my name off the mortgage?

No. The CFPB says taking your name off a home's title doesn't take your name off the mortgage, and a creditor can still collect from anyone named as a borrower unless the creditor released you or your former spouse refinanced the loan and removed your name. Line up the refinance or the release before the deed is recorded, so the loan goes with the house.

What should you do before the deed is signed?

1. Agree on a value. A buyout needs a number both of you accept. Start with a neutral home value that both owners and both attorneys can see.
2. Count the days. If the decree is coming, know when the 90-day window opens and closes.
3. Ask which exemption applies. Your attorney decides which exemption, if any, fits your facts, and whether Form RTF-1EE is needed.
4. Fix the mortgage first. The refinance or release should be lined up before the deed records.

The rules are statewide, so they're the same whether the home is in Monmouth County or Ocean County. What changes from one case to the next is the timing: when the decree is entered and when the deed is recorded.

What are the most common mistakes?

• Recording the deed months after the decree and assuming it's still exempt
• Assuming that a judgment that includes your agreement makes the deed a court-ordered transfer
• Leaving the RTF-1 affidavit off the deed
• Believing the deed removes the other spouse from the loan

Frequently Asked Questions

Do we have to file anything to claim the exemption?

Yes. The Division of Taxation requires Form RTF-1, the Affidavit of Consideration for Use by Seller, with any deed that claims a full or partial exemption from the fee.

Does the exemption apply to civil union partners?

Yes. The Division's Civil Union Act page says the exemption for deeds between spouses also applies to civil union partners, and the divorce-decree exemption applies to former partners under a dissolution decree.

We're separated but not divorced yet. Which rule applies?

Ask your attorney before the deed is drawn. The Division's list covers deeds "Between husband and wife," and the separate 90-day exemption covers deeds recorded after a divorce decree.

What if the deed goes to a former spouse years after the divorce?

In the Division's own example, a transfer made many years after the divorce under a separation agreement was not exempt, and the fee was figured on the cash paid plus one-half of the remaining mortgage balance.

This is general information, not legal, tax or lending advice. Exemptions depend on your facts and your documents, so confirm them with your attorney before the deed is signed.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Read the divorce home sale guide
• What comes out of the proceeds at a divorce closing
• Buying a new home after a divorce
• Have a question this didn't answer? Send it to Dennis Mark.