What if my divorced or separated spouse and I disagree over who will claim our children as dependents?
Determining which parent can claim the children as tax dependents can be a volatile issue in a divorce or legal separation. And for obvious reason — the tax code rewards parents of dependent children with lucrative tax deductions, and tax credits. The bottom line is that the ability to claim your child can make the difference between thousands of dollars saved during tax time. So what are your options if your divorced or separated spouse disagrees with which of you will claim the children as dependents?
Qualifying Child –
To answer the question, it’s important to know that in order for a child to be claimed as a dependent, Federal tax law requires that the child must be a “qualifying child.” Parents who are separated, divorced, or getting a divorce, need to know that the IRS definition of a qualifying child is fairly clear. The child must live with the taxpayer for more than half of the tax year. The child must receive more than half of their support from the taxpayer. And the child must be either under 19 years of age at the end of the year, under 24 years of age and enrolled full time in school for at least 5 months during the tax year, or any age and permanently disabled.
Custodial Parent –
Assuming a qualifying child exists, the general rule between separated or divorced parents is that the parent designated as the custodial parent in a divorce or legal separation has the right to claim the tax benefits. But in most cases, if the custodial parent agrees, those rights can be shared, and essentially negotiated for during the settlement phase of a divorce or legal separation, and made a part of the final Court Order. Parents who are not the custodial parent, but that are granted the ability to claim a child as a dependent should be careful to obtain IRS form 8332 signed by the other parent prior to filing their taxes. A special rule allows parents of divorces that finalized between 1984 and 2009 the option to be able to provide qualifying pages from the divorce decree instead of a signed form 8332. Be sure and seek legal advice from your tax attorney or divorce attorney about this option.
If my Divorce or Legal Separation isn’t final, should I race to file my taxes before the other parent does?
If you’re asking this question, then you already know that only one taxpayer can claim a dependent for any given tax year. And while the temptation may be to race to file your taxes, in hopes of claiming child dependents before the other parent does, this may not be the best move. Regardless of when you file your return, if two parents claim the same child dependent on separate returns, the IRS can and will do a file review to determine which taxpayer has the right to claim the dependent. In such cases, they will look to see which household the child lived with the longest during the tax year. If the length of time is equal between the parents, then the IRS will grant the dependent status to the parent whose adjusted gross income is higher for that tax year. Be aware, that the taxpayer who incorrectly benefited from claiming the dependent must pay back the benefit to the IRS, most likely with interest and penalties. In general it’s always better to determine beforehand who can claim the children as dependents. But if agreeing on this point isn’t an option, make sure you seek legal advice before you act, and risk making a tax-filing mistake that could cost you.
My Divorce or Legal Separation is final, but my ex-spouse isn’t abiding by the Court Order that states I get to claim the children as dependents.
While Federal law and State law operate together, they occasionally come into conflict. That truth is no clearer than when talking about taxes and divorce. Because the state Courts in Missouri view what is in the best interests of the children as such a high priority, issues dealing with children are often fluid – even post divorce. It is not uncommon for parents to successfully petition the courts months or even years after a divorce or separation to modify custody, support, and even tax dependency status. With that in mind, it’s important to know that the IRS (federal law) may not always rely on what the language of your divorce decree (state law) says to determine who claims the children as dependents. Notwithstanding the special tax rules for divorces finalized between 1984 and 2009, often a state court judge, or average family law attorney has little to no experience in tax law, and may not include an adequate clause in the decree that the IRS can look to for guidance. For those divorces that occurred during or after 2009, or for divorces that have been modified, or for divorces with inadequate tax treatment in the decree, it is often true that if a parent otherwise qualifies by the IRS standards to receive the benefit (regardless of what the decree says), that parent will have the right to claim the child. Keep in mind a parent given a right by the state court to claim a dependent that is not allowed to do so by the IRS may still have a legal remedy. In such cases, the state courts may be able to protect your provisional property rights as a parent (not as a taxpayer), and may hold the other parent in contempt for disobeying the Court ordered divorce Decree.
Other Considerations —
Remember, it may make sense to allow the other parent to claim the dependent if you make too much money to receive the child tax credit. Often couples will use this financial benefit as a negotiating chip in their divorce. While this is common, beware that issues relating to children can always be modified, and are therefore not permanent. So be careful not to negotiate away permanent rights, like property division, for ones that can be modified later, like issues regarding the children.
Remember, this post is not meant to be comprehensive legal advice. If you have legal concerns, please seek legal advice before making any decisions. Our tax attorneys, and family law attorneys are available to answer your questions. At Reneau & Shernaman, LLC Attorneys at Law, we make the complicated less complicated. Call now for a free consultation – (816) 287-8080.