TAXATION ‑- SEPARATION AGREEMENTS ‑- REAL ESTATE EXCISE TAX

TAXATION ‑- SEPARATION AGREEMENTS ‑- REAL ESTATE EXCISE TAX

1. The excise tax does not apply to property settlement agreements which the parties make with the intent that such agreements are not to become final and binding until so ordered by the court pursuant to a divorce proceeding.

2. The excise tax does apply to property settlement agreements which the parties intend to be final and binding irrespective of the completion of a contemplated divorce proceeding.

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                                                               September 5, 1951

Honorable Roger L. Olson
Prosecuting Attorney
Franklin County
Pasco, Washington                                                                                                              Cite as:  AGO 51-53 No. 120

Dear Sir:

            We have your request for our opinion on the following question relative to the Real Estate Sales Tax authorized by chapter 11, Laws of 1951, Ex. Sess.:

            Does the Real Estate Property Tax apply to property settlement agreements in divorce cases?

            Our conclusion is:

            1. The excise tax does not apply to property settlement agreements which the parties make with the intent that such agreements are not to become final and binding until so ordered by the court pursuant to a divorce proceeding.

            2. The excise tax does apply to property settlement agreements which the parties intend to be final and binding irrespective of the completion of a contemplated divorce proceeding.

                                                                     ANALYSIS

            A "sale," as defined in part by the model ordinance implementing chapter 11, Laws of 1951, Ex. Sess. is as follows:

             [[Orig. Op. Page 2]]

            "'Sale' shall have its ordinary meaning and shall in addition include any conveyance.  * * * or transfer or ownership of or title to real property or an estate or interest therein for a valuable consideration."

            We think there is no "sale" within the above definition where the parties enter into a property settlement agreement which is merely for the purpose of being incorporated into the decree of the court and will have no effect until this be done.

            In a divorce action the trial court has all the property of the parties, whether separate or community, before it.  Any property agreement made by the parties in contemplation of divorce and merely for incorporation into the decree as the distribution desired by the parties may either be followed by the court, if it deems the agreement equitable, or be completely ignored by the court.  Lee v. Lee, 27 Wn. (2d) 389, 178 P. (2d) 296; Munroe v. Munroe, 27 Wn. (2d) 556, 178 P. (2d) 983.  Irrespective of the court's choice to regard or disregard the settlement, a property division between the parties is by the court and is as the court deems just and equitable.  State ex rel. Atkins v. Superior Court, 1 Wn. (2d) 677, 97 P. (2d) 139.  This is further illustrated by the fact that if the divorce proceedings are not completed the property settlement agreement falls.  In re Martin's Estate, 127 Wash. 44, 219 Pac. 838; State ex rel. Atkins v. Superior Court, supra.  Any property division and ensuing transfer is caused by the order of the court.  Thus, when the husband transfers property to the wife pursuant to the court's order, there is no consideration running to the husband for this transfer; likewise, there is no consideration running to the wife when she transfers property to the husband pursuant to a court order.

            Property settlement agreements, the effect of which is not conditioned upon securing a divorce and which presently distribute or contract to distribute the property to the parties, are subject to the tax authorized by chapter 11, Laws of 1951, Ex. Sess.  In these agreements the promise of one is the consideration for the promise of the other; there being a transfer of title to realty, such agreements come within the definition of a "sale," supra, and are, therefore, subject to the tax.

Very truly yours,

SMITH TROY
Attorney General

WILLIAM O. JENKINS
Assistant Attorney General