Editor Note: due to the volume of mail we get on home sales and capital gains, we are posting a link to the IRS site for faqs on this topic, click here

Question: My wife and I sold our home 16 months ago and moved into a condominium to retire. Now we’re getting divorced. We own this condo jointly. She has moved out, and I will be living there until it is sold and we divide the proceeds. We purchased the condo at preconstruction prices, and it has appreciated significantly. Can we exclude capital gains on the sale of this property as our principal residence?

Answer: We have been receiving an increasing number of questions about the sale of the marital home and capital gains exclusions. While individuals are allowed to exclude the capital gains generated from the sale of personal residences an unlimited number of times (up to $250,000 each per sale), there must be at least two years between sales. If there is less time between sales, you will not be able to exclude the gain generated by the second sale.

That said, because many homes are sold as a result of divorce, federal tax law recognizes the special problems involved here, since it is not uncommon for one spouse to move out months, if not years, before the house is sold. In order to allow the “departed” spouse to either attain or retain the required two-year occupancy needed to qualify his or her ownership interest for the full capital gains exclusion, the law allows the departed spouse to count the time the other spouse occupies the residence as if the departed spouse was still living in the home.

But we don’t think that particular law will help you (unless you secure a differing opinion from your lawyers) because of the other rule that there must be at least two years between sales.

Question: My second wife and I are separated and getting ready to divorce after 21 years. I have two grown children by my prior marriage. She has none; we have none. We each have 401 (k)’s and IRA’s. Can I change the beneficiary of my IRA’s and 401(k) to my children before the divorce?

Answer: Unless there is a court order in effect that prevents you from doing so, each of you can change the beneficiaries of your IRA’s, life insurance policies, wills, and annuities without the consent or knowledge of the other, either before or after divorce.

However, your pensions and 401 (k)’s are different because they are governed by a federal law called ERISA, which prevents you from removing your spouse as beneficiary without her written consent before divorce – which undoubtedly she will not give.

Today, most states have laws that automatically revoke a devise or bequest in a will to a spouse contained after a divorce is granted or after a final settlement has been reached; however, without a specific provision in your settlement agreement or court order, your divorce will not in and of itself revoke the designation of your spouse as beneficiary of your IRA, annuity, or insurance policy. To make sure that your former spouse does not receive the benefit of these assets at your death, you must sign new beneficiary designations.

If you don’t remove your former spouse as a beneficiary of your pension plans and insurance after divorce, she may receive the payout at your death. Therefore, as the plan participant, you should sign new beneficiary designations. And since this area is so complicated, we suggest that you confirm your plans with your lawyer and tax advisor before you act.