Tax Exemption for Kids After Divorce

In honor of tax day, a tax topic that comes up in and after divorce… Who gets the exemption for the child after divorce? Only one of the parents is allowed to do so. And the IRS makes clear that it’s the “custodial parent.” So in Texas, this is almost definitely the parent who has JMC with the exclusive right to decision-making about where the child lives. If you have decision-making on residence, you claim the child. (If the JMC does not give one party decision-making, then the custodial parent would be the party that the decree awards possession of the children for more days of the year to.) Now, the IRS does provide a procedure where the parties could switch the exemption. To make this happen, the parties would need to agree to include some very specific language about this in the divorce decree (and judges are unlikely to order this without agreement), and the custodial parent would need to provide the non-custodial parent with IRS Form 8332 specifying the years that the decree awarded the non-custodial parent the exemption. Federal tax law trumps state family law, so the divorce decree must conform to the IRS rules on the topic. Here’s the IRS page explaining this topic (scroll down a bit to where it says “Children of Divorced or Separated Parents”). For most people involved in most divorces, I would not recommend that a client try to set this Form 8332 procedure up in his or her divorce decree. Part of the point of getting a divorce is to disentangle yourself financially from your ex. Having to chase your ex-spouse (or be chased) at tax time for this form just seems like a recipe for completely avoidable conflict. There is a way for the custodial parent to revoke a prior form 8332 allowing the non-custodial parent the exemption and the possibility for potential problems here are clear. There are almost always other and better ways to split up the marital assets and debts, ways that hopefully allow for complete finality upon the judge signing the divorce decree. But hey, in an unusually amicable divorce where both parties agree that the Form 8332 procedure is a great idea given their particular financial circumstances, it is another possible item up for negotiation. (A possible exception to the above: If your spouse was given the right to decision-making on residence in the divorce decree, but is not exercising his or her right to have the child live with him or her, and so you end up with the child actually living with you more than 50% of the year even though that’s not what’s on paper…. Well, first of all, if that’s your situation, you have grounds for a modification and you should contact my office anyway, especially if you’re still paying child support. But second of all, you have an argument you should receive the child tax exemption, at least in the future. This would definitely be a “contact me for a consultation” type of situation.)