I Do, I Don’t, I Shouldn’t Have. . . Put My New Spouse’s Name on Title to My Home

Sharon Kreider, CPA

Tara Long married Daniel Long in early 2015. In 2016 she bought a home in South Jordan, Utah, and shortly after taking title conveyed it to herself and Daniel as joint tenants. Only Tara was on the mortgage, and the home has been her primary residence since 2016. A Utah divorce decree entered January 14, 2019, awarded the home to Tara and made Daniel solely responsible for his entire federal tax debt. Daniel has not lived there since the separation.

The United States sued to collect Daniel’s liability. On November 20, 2025, the court entered a default judgment against Daniel for $67,053.17, granted the government summary judgment that its lien attached to the home, and ordered foreclosure. Tara asked the court to reconsider, and on February 12, 2026, the court stayed the foreclosure order to conduct an equitable assessment under 26 U.S.C. §7403.

Law Permits the Court to Order the Sale

Section 7403 authorizes the government to enforce its lien in district court and permits the court to decree a sale of the property. In United States v. Rodgers, 461 U.S. 677 (1983), the Supreme Court held that §7403 allows sale of the entire property, including the interests of nonliable third parties, while leaving the court limited discretion, to be exercised rigorously and sparingly, to refuse a sale. Rodgers identified four nonexhaustive factors:

The prejudice to the government if it were limited to selling only the taxpayer’s partial interest
Whether the third party had a legally recognized expectation under state law that the property would not be subject to forced sale by the taxpayer or his creditors
The likely prejudice to the third party, in both personal dislocation and practical undercompensation
The relative character and value of the liable and nonliable interests.

The third party bears the burden, and if the property is sold she is compensated from the proceeds for her interest.

The Court Lifted the Stay and Allowed the Foreclosure to Proceed

The first factor weighed significantly for the government because both sides agreed there was no market for Daniel’s half interest. Tara proposed a court-defined window to buy out or refinance the government’s interest, but the court followed United States v. Cardaci, 856 F.3d 267 (3d Cir. 2017), which confines the first factor to whether a partial sale would adequately compensate the government.

The second factor favored Tara, as the government conceded that Utah’s homestead exemption gave her a legally recognized expectation against forced sale.

The third factor favored the government. Losing a long-term home, relocation costs, and lost stability are hardships nearly every third party faces, and Tara showed nothing comparable to the elderly, seriously ill, no-income spouse in United States v. Jensen (D. Utah) or the homemaker with no income and a minor child in United States v. Jones (D.N.J.). She earns a six-figure salary and will receive more than $200,000 after the liens and mortgage are paid.

The fourth factor was neutral. Utah joint tenants hold equal, undivided interests, and the lien attached to Daniel’s interest and remained attached when the decree transferred it to Tara. With only one factor in her favor, Tara did not carry her burden.

Tax Practitioner Planning

The divorce decree did nothing for Tara against the IRS. A state court can allocate a tax debt between spouses, but the allocation does not bind the United States, and Tara took Daniel’s interest subject to the lien already attached to it. When a client is keeping the residence and the other spouse has assessed federal tax, the lien should be resolved in the property settlement, either by paying the balance from the marital estate or, if the liability exceeds the obligor spouse’s equity, by seeking a certificate of discharge on payment of the value of the government’s interest under §6325(b)(2)(A) or through the third-party owner procedure in §6325(b)(4).

Example – variation on adding spouse to title. Adding a spouse to title can create a second exposure. Marilyn bought her home in 2005 and married George in 2020. Sitting on a large gain, she followed the advice of a neighbor (who prepares his own return) and added George to the title so the couple would get the $500,000 exclusion on a sale. The retitling was unnecessary. Under §121(b)(2)(A), a married couple filing jointly qualifies for the $500,000 exclusion if either spouse meets the ownership test, both meet the use test, and neither has used the exclusion within the prior two years. Marilyn’s ownership was enough, and George only needed to live in the home two of the five years before the sale.

What the deed did accomplish was giving George an undivided one-half interest, and with it a claim to half the equity when he filed for divorce in 2026. What are Marilyn’s choices when George wants half of her house?

If the house is sold and the proceeds divided, the exclusion survives. On a joint return for the year of sale, the full $500,000 is available. If the divorce is final by year-end and a joint return is not possible under §7703(a)(1), each spouse excludes up to $250,000 of the gain on his or her own half. George’s half carries Marilyn’s basis under §1041(b), and §121(d)(3)(A) lets him count her period of ownership. Either way the tax result is acceptable, but Marilyn has given up half her equity and no longer has a home.
If Marilyn instead buys George out, the tax result is worse for her. The transfer of George’s half to Marilyn is incident to the divorce, so under §1041(a) George recognizes no gain on the cash he receives. Under §1041(b), Marilyn takes George’s basis in that half, which is her own 2005 basis. The buyout payment adds nothing to her basis, and when she later sells as a single taxpayer she will have the entire built-in gain on the home against a $250,000 exclusion.

Tax Practitioner Planning. The planning lesson starts with the exclusion itself. Retitling a residence to qualify for the $500,000 exclusion solves a problem that does not exist. Where a client wants a spouse on title for other reasons, she should see a family law attorney before signing the deed. A prenuptial or postnuptial agreement may allow the spouse to be added to title while preserving the contributing spouse’s equity on divorce.

In a community property state, though, there is a tradeoff. A common reason to put a spouse on title is to convert the home to community property so that both halves receive a basis adjustment at the first death under §1014(b)(6). An agreement that keeps the home as the contributing spouse’s separate property gives up that adjustment, so the client may have to choose between protecting her equity on divorce and a full basis step-up at death. State law controls whether adding a spouse to title is a transmutation of separate property and whether the contributing spouse has a reimbursement right on divorce. In California, see Fam. Code §§852 and 2640. Confirm with family law counsel before relying on this.