Was REET due when an LLC quitclaimed property to carry out a divorce settlement decree without new consideration?

Plain-English summary

The Washington Department of Revenue granted a REET appeal where a single-member LLC quitclaimed a property interest to the owner's former spouse to complete a divorce settlement decree without new consideration.

The decree awarded the property to the husband but allowed the wife to remain on title until he paid unrelated debts. While waiting, the wife transferred her interest to her wholly owned LLC for personal-liability protection. After the husband satisfied the decree's conditions, the LLC transferred the interest directly to him.

The determination analyzed both steps. The wife's transfer to her LLC was a mere change in form because she remained the controlling owner and beneficial owner. For the later transfer, the LLC could have deeded the interest back to the wife and the wife could then have deeded it to the husband, but that extra step would have changed nothing. Acting through the wholly owned LLC fulfilled the decree, no new consideration passed, and REET did not apply under the settlement-decree rule. The petition was granted.

What this means for you

Divorcing property owners

Washington exempts transfers between spouses or domestic partners that fulfill a dissolution settlement. Keep the decree, proof that its conditions were satisfied, and documents showing that no new bargain or consideration was added.

Single-member LLC owners

An intermediate transfer to a wholly owned LLC can be a nontaxable change in form when beneficial ownership does not change. But the later transfer still needs its own exemption; here it qualified because it completed the decree.

Real-estate and tax professionals

Analyze every deed in sequence. The first transfer relied on the mere-change-in-form rule, while the second relied on the court-decree rule. The Department initially assessed the second transfer because the LLC was not named in the decree, but the determination looked through that unnecessary formal step to the unchanged beneficial ownership and decree obligation.

Common questions

Q: Why was the wife's transfer to her LLC not taxable?

A: She wholly owned and controlled the LLC, so the transfer did not change beneficial ownership of the property and qualified as a mere change in identity or form.

Q: The LLC was not named in the divorce decree. Why did its deed still qualify?

A: The wife could have transferred the interest from the LLC back to herself and then to the husband. Because she was the LLC's sole owner and the direct deed merely completed the decree without new consideration, the determination found the extra step unnecessary.

Q: Did the husband pay anything new for the LLC's quitclaim deed?

A: No. The record showed no additional consideration to the wife or the LLC; the transfer occurred after the husband satisfied the existing settlement conditions.

Q: Does every LLC transfer connected to a divorce avoid REET?

A: No. The result depended on unchanged beneficial ownership, sole ownership of the LLC, fulfillment of the decree, and no new consideration. Different ownership or transaction terms could change the result.

Citations and references

• RCW 82.45.010(3)(f) and WAC 458-61A-203(2) (transfers fulfilling dissolution settlements)
• RCW 82.45.010(3)(p) and WAC 458-61A-211 (mere change in identity or form)
• WAC 458-61A-100 and -102 (REET scope and definitions)
• Yakima Fruit Growers Ass'n v. Henneford, 187 Wash. 252, 60 P.2d 62 (1936)
• All-State Construction Co. v. Gordon, 70 Wn.2d 657, 425 P.2d 16 (1967)
• Budget Rent-A-Car, Inc. v. Department of Revenue, 81 Wn.2d 171, 500 P.2d 764 (1972)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD037.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD037.pdf)

Original ruling text

Det. No. 23-0147, 45 WTD 037 (March 6, 2026)

37

Cite as Det. No. 23-0147, 45 WTD 037 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition
Refund/Correction of Assessment of
...

for )
)
)
)
)
)

DETERMINATION
No. 23-0147
Registration No.. . .

RCW 82.45.010; WAC 458-61A-203 – REET AND REAL PROPERTY
TRANSFERS PURSUANT TO COURT DECREE. Transfers that merely satisfy settlement agreements do not trigger the imposition of REET. Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. Kelly, T.R.O. – Taxpayer, a single-member LLC, petitions for review of Real Estate Excise Tax (REET) imposed on the transfer of real property. A settlement decree ordered a wife to quitclaim her interest in the real property to her husband after he satisfied unrelated debts to her. Before he satisfied the debts, she transferred her interest to Taxpayer for personal tort liability protections. After he satisfied the debts, Taxpayer quitclaimed its interest to her husband. While this did not follow the exact terms of the settlement decree, we find it mere clearing of title as no additional or new consideration passed between the parties. We grant the petition. 1 ISSUE Whether a transfer of real property qualifies as an exemption from REET under RCW 82.45.010(3)(f) and WAC 458-61A-203 (REET Rule 203) as a transfer made pursuant to a court decree when a divorcing taxpayer quitclaims their interest in real property to the taxpayer’s wholly owned LLC for liability protections prior to the LLC quitclaiming interest in the real property pursuant to the terms of a settlement decree. FINDINGS OF FACT
. . . (Wife), jointly with . . . (Husband), owned property. . . (Property). On April 1, 2016, as the couple went through divorce proceedings, the Property came under the control of a settlement decree. The settlement decree awarded the Property to Husband but left Wife’s name on the title as collateral for unrelated debts Husband owed Wife pursuant to the settlement decree. The settlement decree instructed Wife to quitclaim her interest in the Property when Husband resolved the debts. In relevant part, it states: 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

Det. No. 23-0147, 45 WTD 037 (March 6, 2026)

38

The wife shall execute a Quit Claim Deed and Real Estate Excise Tax Affidavit in favor of the husband conveying all right, title and interest in and to the aforesaid real property to the husband when husband provides proof that the . . . HELOC has been paid off and the account closed. The parties shall cooperate in any reexecution of documents, which might be needed in order to amend or correct a legal description. Settlement Decree. 2 Husband did not resolve the debts until 2020. In the intervening years Husband rented the Property to tenants. Wife heard about potential problems with these tenants and their animals. According to Wife, she became concerned for her personal liability, and formed. . . (Taxpayer) and transferred her interest in the Property to Taxpayer. Wife wholly owns and controls Taxpayer. Subsequently, in 2020, Husband fulfilled the terms of the settlement decree including resolving the debts. Taxpayer then quitclaimed its interest in the Property to Husband. Wife states that she did this to fulfill the terms of the settlement decree. On February 27, 2020, Taxpayer filed a real estate excise tax affidavit with . . . County for the transfer of a 50% ownership interest in the Property to Husband. Taxpayer claimed an exemption under WAC 458-61A-211 (REET Rule 211) for mere change in identity or form. The Department of Revenue’s Audit Division (Audit) conducted an audit of the transfer. Audit determined the exemption did not apply to the transfer and Taxpayer owed REET. Audit reasoned that, while REET Rule 211 may have applied when Wife transferred her interest to Taxpayer as they are effectively the same entity, it did not apply to Taxpayer quitclaiming the property in favor of Husband as they were separate entities. Audit further reasoned that REET Rule 203 regarding transfers in satisfaction of court decrees did not apply. Audit came to this conclusion because Taxpayer was not a listed entity on the settlement decree and could not have made the transfer pursuant to a settlement decree, therefore Taxpayer had tax liability. On October 12, 2022, the Department issued Notice of Balance Due Letter . . . in the amount of $. . . . 3 Taxpayer timely petitioned for review. In its petition, Taxpayer argued that it was fulfilling Wife’s obligations under the terms of the settlement decree. During the hearing, Taxpayer made clear that neither it nor [W]ife received any additional consideration and merely sought to fulfill the terms of the settlement decree. ANALYSIS Washington imposes REET on every transfer of real estate unless a specific exemption applies. See WAC 458-61A-100(1), WAC 458-61A-102(20). Exemptions to a tax law must be narrowly Taxpayer provided only excerpts of the Settlement Decree via fax October 11, 2022. This was on the second page of the fax, but it’s not noted what page of the Settlement Decree it was on. 3 The amount subdivides as follows: $. . . in tax, $. . . in penalty, and $. . . in interest. 2

Det. No. 23-0147, 45 WTD 037 (March 6, 2026)

39

construed. Yakima Fruit Growers Ass'n v. Henneford, 187 Wash. 252, 60 P.2d 62 (1936); All-State Constr. Co. v. Gordon, 70 Wn.2d 657, 425 P.2d 16 (1967). It is the taxpayer’s burden to establish its entitlement to any deduction or exemption from tax liability. Budget Rent-A-Car, Inc. v. Dep’t of Revenue, 81 Wn.2d 171, 174-75, 500 P.2d 764 (1972). Satisfaction of Settlement Decree REET Rule 203 states: The real estate excise tax does not apply to any transfer, conveyance, or assignment of property or interest in property from one spouse or domestic partner to the other in fulfillment of a settlement agreement incident to a decree of dissolution, declaration of invalidity, or legal separation. WAC 458-61A-203(2); see RCW 82.45.010(3)(f). As such, transfers that merely satisfy settlement agreements do not trigger the imposition of REET. Mere Change in Identity or Form of Ownership Additionally, REET does not apply to mere changes in identity or form of ownership of an entity. REET Rule 211(1); see RCW 82.45.010(3)(p). REET Rule 211 provides a non-exhaustive list of qualified transactions and examples. REET Rule 211(2)-(3). The unifying similarity of these exemptions to REET is that no change in beneficial ownership occurs. See Id. From this we conclude that without a change in beneficial ownership, no REET becomes due. There were two transfers in this case. The initial transfer from Wife to Taxpayer did not create a taxable event. Wife had a controlling interest in Taxpayer granting her the same interest in the Property she had held previously as an individual. Wife may have gained additional personal liability protections, but her rights as to the real property did not change. RCW 82.45.010(3)(p). Given no change in beneficial ownership, under REET Rule 211, this transfer did not create a taxable event and no tax was assessed. The second transfer was from Taxpayer to Husband via quitclaim deed. The settlement decree required Wife to quitclaim her interest in favor of [H]usband. Taxpayer could have quitclaimed its interest in the Property back to Wife who could then have quitclaimed her interest to Husband. However, this was unnecessary as Wife had a controlling interest in and was the sole beneficiary of Taxpayer. As discussed in relation to REET Rule 211, this was a mere change in form without change in beneficial ownership. Wife chose to act through Taxpayer to fulfill the terms of the decree, and we find no authority impedes her right to do so [under the decree]. As this transfer was done in fulfillment of a settlement decree, no tax is due under REET Rule 203. DECISION AND DISPOSITION We grant Taxpayer’s petition. Dated this 10th day of August 2023.