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Georgia's Title Ad Valorem Tax: Trap for the Unwary Divorce Lawyer

Posted by Sean A. Black | May 15, 2014 | 2 Comments

Vehicle transfers are not always smooth.  When the transfers are between ex-spouses are often more so.  Particularly, if the transferring spouse doesn't really want to give up the title.  Recent Georgia legislation has now made it even more complicated and, potentially, expensive for the receiving party.  The change can also influence the negotiation and timing of transfers.

Enter the Title ad Valorem Tax

If you are dealing with a divorce where a vehicle title will need to be transferred, it is important that you and your attorney understand the Title ad Valorem Tax law (TAVT), because your ex-spouse could be handing you not only the title to a vehicle but also a big tax bill.

Georgia has two taxation systems in use for vehicles:  the legacy system and the TAVT.

The legacy system was that you paid sales tax at the time of sale or, in the case of out-of-state sales, at the time of registration in the state of Georgia.  After that, you paid annual ad valorem tax at a lower rate.

The TAVT imposes a title tax at the time of purchase or initial registration in the state.  Thereafter, there is no annual ad valorem tax, but an additional TAVT applies each time the title is transferred.  The TAVT is currently seven per cent (7%).  The tax rate is applied to the state scheduled value of the vehicle based on its VIN.

You can find out how much the TAVT would be on your vehicle using the Georgia Department of Revenue's online calculator.

The TAVT can be dramatically reduced, to 0.5%, for certain transfers between certain close relatives.  On a transfer of a $30,000 vehicle, that is a savings of almost two thousand dollars.

So what's the problem?

The problem is that people who just got divorced are not related to one another any more.  So, if a vehicle transfer is done after the divorce decree, then the transfer does not qualify for the close family exception to the tax.

If a client finds this out after the divorce is finalized and were not prepared for it by the attorney, it can be a shock and may cause them to question the qualify of representation provided by their attorney.

Attorneys, therefore, should be prepared to recognize and address this issue with their clients.

Parties and their attorneys can reduce the tax burden by resolving these issues prior to the decree and completing the vehicle transfers prior to the divorce being finalized.  This can only be accomplished, however, if there is an agreement.  If the parties have a contested final hearing or trial, it is not going to be  typical that the transfers could occur prior to the final decree.

Hard Bargaining Ahead

In some cases, the presence of this tax liability can become a bargaining chip for the case.

Example:  Wife's vehicle is titled in Husband's name.  It is a paid for late model Mercedes valued at $80,000.  Wife wants to keep driving and wants ownership of "her" Mercedes.  Husband can refuse to transfer the vehicle to the Wife without a final order.  By doing so, he can stick the Wife with a greater than $5,000 tax bill.  In negotiations, the Husband can attempt to extract that value elsewhere in the division of debt or payment of alimony.

The effect of the TAVT on divorce negotiations is inconsistent with every other divorce asset taxation system that I am aware of.  Typically, a transfer incident to a divorce is treated as an exempt transfer.  This is certainly true of real property transfers.

So, if the example above was changed to say that the asset in question was an $80,000 real estate parcel, then there would be no tax liability created by the transfer between ex-spouses.  Therefore, neither party could use the threat of a tax liability to gain an advantage in the negotiations.

How to Respond

When a case will go to a final hearing or trial with the vehicle issue unresolved, the attorney needs to prepared to argue for the court awarding not only the vehicle but the money to cover the TAVT as well.

Whether this distinction was purposeful or not is unknown.  It is an unfortunate reality, and the legislature has not done anything to change this yet.  We will have to wait and see whether some change will be considered during next year's legislative session.  Hopefully, it will be addressed, because the current system has great potential for inequitable results.

If you are considering a divorce, you should consult with a lawyer about all issues, but this one may need special attention.  Vehicles should be titled in the name of the party who will retain possession of the vehicles.  Planning ahead about these issues can save significant amounts.

We are always happy to consult with you about these and other issues which can arise before, during and after a divorce.

About the Author

Sean A. Black

Sean A. Black is a 1992 graduate of the Emory University School of Law. He has been in private practice in Toccoa, Georgia since June 1, 1992.

Comments

Ira Terry Reply

Posted Aug 02, 2016 at 18:25:55

Dear sir. I would argue that retiree’s moving to this State are being fleeced by this same, unconstitutional tactic. Having already paid taxes to one State and having to “pony up” for another 6.5 – 7% residual value is,in my opinion, double taxation on the same product. No doubt, the State needs an income generation for registering vehicles but the amounts for the ones on fixed incomes and looking for a place to spend their golden years should bare this much financial hardship.
sincerely,
Ira Terry

arthur c Reply

Posted Mar 30, 2017 at 14:44:29

great article, and very well said. Helping a friend with this issue right now, her attorney dropped the ball and messed this up royally. I had a feeling this was the case regardless of what she was told. Unfortunately after reading this, my fear is true, and she is about to be holding a $2600 tax bill. Any options other than to pay the tax after the divorce has been finalized?

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