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Matrimonial and Family Law Blog

Monday, September 11, 2017

My Spouse and I Have Joint Custody of Our Children - Who Should Be Claiming Them for Tax Purposes?

Tax laws are complicated at best, and when you add to the mix divorce laws, it is easy to understand why people have questions about the tax consequences of divorce. When one parent has custody of a child in New York, that parent has the right to claim the dependency exemption for the child, unless the parent gives up the right. It gets tricky when parents have joint custody of the child. The IRS does not allow parents to split the exemption. Only one parent may claim the exemption in any given year.

You may be wondering whether you should talk to a child custody lawyer about this type of thing. The answer is: absolutely! New York has several tests to determine who can claim the dependency exemption for a child. One test is the residency test. Under this test, the child must live with you for more than half of the year to be your dependent.

Another test is the support test. This test requires that you provide at least half of the child’s financial support during the year to claim the child as a dependent on your taxes. Both tests open the door to controversy, as each parent may claim to have had the child for at least half the year and paid at least half of the child’s support. The difficulty can be in trying to come up with evidence to prove your argument. Luckily, there are better ways to handle this contentious question.

How to determine the dependent exemption issue

Many judges will include in the divorce decree a decision as to which parent will take the dependency exemption. Some judges order that one parent gets the exemption that year, and they will alternate it every year after that as long as the child qualifies as a dependent. Many courts use divorce decree worksheets or judgment forms that include a section on the child dependency exemption, to ensure they deal with this important issue.

Some couples reach an agreement about the dependency exemption. If one spouse makes substantially more money than the other, it may be practical for that parent to take the dependency exemption every year. The other spouse should get a financial incentive, such as higher child support or a larger property distribution, for agreeing to this plan.

Whether the issue is decided by the judge or by the parents, it is best practice every year to have the spouse who does not take the exemption sign a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent and give it to the other parent. The divorce decree or settlement agreement should include a requirement that the parent does this by a specified date every year.

Tie-breaker rule

If the dependent exemption has not been resolved by the court or by agreement of the parties, and the child lived with each parent the same number of days throughout the year, the parent with the higher Adjusted Gross Income (AGI) will get to claim the exemption in New York.

As you chart your new path during and after your divorce, get the guidance of a New York divorce attorney. Please contact us today to set up a free consultation to discuss your options. This is not something you want to try to figure out on your own.

 


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