Attorney, Cordell & Cordell
Many non-custodial parents believe that following a divorce, they are entitled to claim the minor children as their dependent for tax purposes so long as they are paying child support.
That is absolutely not the case.
Pursuant to Title 26 of the Internal Revenue Code, when parents of a child(ren) do not live together and they file separate tax returns, whether through divorce, separation, or a child being born out of wedlock, the parent with whom the child resides more nights during the year shall have the right to claim the minor child(ren) as his/her dependent.
The reality is that if a case is tried by a judge, there is no way that the Internal Revenue Service (IRS) regulation can be overridden. Because the IRS operates under federal law and federal law supersedes state laws, it would be an abuse of judicial discretion for a judge to award a parent the tax exemption for a child over whom the parent does not have primary physical custody.
This, however, is not a bar on changing the exemption provision by agreement of the parties. In the event that the parties are able to agree on all of the other issues involved in a divorce, it might be worth your while to throw the tax exemptions on the table, particularly in cases where the incomes are disparate.
It is a fairly common scenario in a divorce action for there to be one working parent and one stay-at-home parent. In cases like this, it is often understood that the working parent will continue to have significantly higher taxable income than the other parent, even if alimony is paid.
Given that a working parent is likely going from filing taxes with a spouse and dependent children to filing as a single individual, there are huge financial implications to such a change.
For this reason, it is smart to ask for some of the tax exemptions for the children. Understand that the custodial parent does not “have” to consent to this type of exchange. However, he or she may.
If you can show your wife that the tax deduction will not benefit her much, but it will benefit you significantly, she may be willing to work with you.
For example, I have seen parties agree that the non-custodial parent may have the tax deduction for the children until such time as the custodial parent has taxable income up to a set dollar amount in a give year.
Another viable option is to divide the children so that one parent is able to claim one or more of the children and the other parent is also able to claim one or more of the children.
If the parties do agree to designate the tax exemptions for the minor child(ren) to the non-custodial parent, then they must expressly state in the agreement that the custodial parent will not claim the children during the designated years. Additionally, a Form 8332 must be executed and filed with the IRS.
Another question that often arises in divorce negotiations is, “Who claims the children if we share equal parenting time?”
The answer to that question can also be found in Title 26 of the Internal Revenue Code. In the event parties share equal parenting time, the party with the higher gross income receives the tax deduction for the minor children.
In Georgia, where I practice, it is not the norm for the parties to share equal parenting time. Because of a prejudice against shared parenting time, the judges nearly always order one parent as the primary physical custodian and the other as the secondary (or visiting) parent.
However, there are many divorcing couples who determine that a shared parenting schedule with equal time for both parents is in their child(ren)’s best interests.
If you happen to secure that type of agreement with your spouse and you are the higher-earning party, know that the deduction belongs to you. Many family law attorneys may not recognize this.
In essence, negotiation of a settlement may benefit you financially. Before making a decision, be sure to explore all of the possible options to save yourself while still providing fully for your children.
Cordell & Cordell has men’s divorce lawyers located nationwide.
Andrea M. Johnson is a Senior Attorney in the Atlanta, Georgia office of Cordell & Cordell, where she practices domestic relations exclusively. Ms. Johnson is licensed to practice law in the state of Georgia. Ms. Johnson was born in the metro-Atlanta area and has spent most of her life in Georgia. She received her Bachelor of Science in Political Science from Columbus State University in Columbus, Georgia in 1998. Ms. Johnson received her Juris Doctor from Mercer University School of Law in 2002. Since graduating from law school, Ms. Johnson has practiced in the area of family law. Additionally, she has worked in general civil practice, immigration, and estate planning. Ms. Johnson has briefed two cases successfully before the Georgia Court of Appeals, one of which was a modification of custody action.
2 comments on “Tax Considerations in the Negotiation of a Divorce Settlement”
Thanks for the comment! Glad we could help
Believe this article even if your attorney tells you not to
I as the custodial parent told my attorney I wanted to claim both of my children every year. She shut me down and told me that I could NOT and that it did not work like that. She gave me no legal reasons, so luckily I did not give her response too much credit. I started researching the subject and stumbled across this article. I emailed it to her and told her again that I wanted to claim both of my children. She responded back with “It is not true.” Luckily I did not stop there. I did more research and found IRS Publication 504 which backs up the claims this article makes. I then contacted a CPA and asked him. The CPA confirmed the accuracy of this article. The parent who has the children more than half of the year, is entitled to claim them for tax purposes and a state judge cannot overrride that.