Divorce: Who Claims the Child Dependency Exemption

You’re divorced or legally separated…

Should you can claim the child dependency exemption?

Simply put, the IRS doesn’t get involved in family law matters.

The IRS definition of “custody” (i.e., parenting time) is based upon the number of nights spent with each parent.

However, often, years go by between the original divorce decree/separation agreement – which is accompanied by a parenting plan.

Change happens. So, the parenting plan could likely become obsolete and, thus, the tax implications as well – at least from a practical perspective. I’m not implying that the family law agreements shouldn’t be followed, but this is really a family law issue and should be taken up in family law court (at a cost, of course, if represented).

Really often, parenting plans change.

Perhaps the parents are co-parenting well together and wish to keep the court out of the situation.

But what happens when the actual – boots on ground – parenting plan changes and causes a ripple effect down to the tax issues?

Again, to get the family law agreements to mesh, one must petition the family law court with appropriate jurisdiction.

Now, in practicality, I would guess very few people (myself included) actually tracks the number of nights their kid(s) spend with them – like in a spreadsheet or whatever…

However, in a case where a parent claims the child by e-filing a return and then the other parent attempts to file claiming the same child, the second parent to file is going to receive a e-file rejection.

This doesn’t mean the claim to the dependency exemption is dead.

It just means the IRS needs to manually process the return. It also likely means that one or both of the taxpayers are going to be subject to an audit. The IRS then may request proof to support custody – as per their definition.

In simplicity, it means the parents just made their income tax situation much more complex.

Oh, by the way, if there is a true 50/50 split in number of nights, the IRS is going to look at the Adjusted Gross Income (AGI) for both of the parents. The tiebreaker goes to the parent with the higher AGI.

The best way to handle this is at the lowest level possible.

That is, collaborate as to each other’s tax situations. Calculate each other’s return with and without the child exemption(s). What’s the best outcome for BOTH parents? Then, be prepared to issue IRS Form 8332 to officially release the exemption(s) (if you’re the custodial parent).

This is all great and such but it’s moot (at least in regards to the personal exemption allowance) as this has been removed under the newly minted tax law.