Tax season has arrived and with it questions as to tax treatment of children of divorcing or divorced parents. For purposes of this article let’s deal with the most basic, the "dependency exemption". According to the IRS, the parent who has custody of his or her child for more than one-half the year can claim the child provided that he or she has provided more than half of the child’s support for the year in question.
In some cases, however, the non-custodial parent can claim the child but in order to be able to do so four requirements must be met:
- First, the parents mus t be divorced or legally separated under a written agreement or lived apart continuously for the last six months of the year;
- Second, the child has received more than half his or her support from the non-custodial parent for the year;
- Third, the child has been in the custody of either or both parents for the greater part of the year; and
- Fourth, the custodial parent releases the claim to the dependency exemption to the non-custodial parent in writing (IRS Form 8332) which must be attached to the non-custodial parent’s tax return.
In many divorce cases, a non-custodial parent’s right to claim the exemption is established by court order or written Marital Settlement Agreement. In divorce negotiations, this right may be a bargaining chip since the exemption is worth more to the higher income parent. Assuming the non-custodial parent receives the exemption, the next question is whether it should be annually or perennially. It is not advisable for the custodial parent to waive the exemption for more than one year at a time and agreeing to do so each year should be tied to a provision in the Agreement or Order requiring the non-custodial parent to be current in child support for the year in question.
Since no two cases are alike, a parent going through divorce should always consult with knowledgeable matrimonial counsel to determine what is in their best interests in terms of settlement or trial.