[FONT="Book Antiqua"][/font]

This question is in regards to the division of assets incidental to divorce and the tax implications of a specific solution under consideration.

Our primary residence is free and clear of mortgage indebtedness. I have agreed to allow my wife to have exclusive use of the home subject to certain restrictions. Neither of us want to sell the property. She is seeking the divorce and I am a reluctant participant. Thus far, the process is reasonably amicable.

I am considering giving her 100% of the fee title to the property and creating a promissory note secured by a first mortgage against the property in lieu of continuing my ownership interest. Title would be transferred by Quit Claim Deed as part of a property settlement agreement.

The note would bear interest at a rate equal to the "imputed interest" rates as required. I suspect that rate will be approximately 5 to 6 percent. Interest would accrue on a simple non compounded basis and be payable together with principal 10 years from execution. The note will have due on sale clause and other restrictions. No payments would be required during the term of the note.

Question:

Will the interest earned but not paid be considered phantom income to me post divorce even though the note was created as an incident of divorce and part of the settlement agreement?


Thank you.