In contrast to the rule on transfer tax, just discussed, Federal Law provides that such a transfer of property incident to divorce does not work a gain or loss concerning capital gains tax; hence no stepped-up in basis results.
§ 1041. Transfers of property between spouses or incident to divorce
No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—
(2) a former spouse, but only if the transfer is incident to the divorce.
