Taxes, Children, and Divorce

 Posted on February 12, 2016 in Divorce

Financial concerns, including taxes, and issues of family law are known for causing frustration and confusion. When you combine the two of them, it can really cause trouble. A married couple may be used to claiming their children as dependents on their taxes and enjoying the dependency exemption they get. Subsequent to a divorce, however, only one of them can claim the children on his or her taxes.

The Default Rule

The IRS has a set of rules and regulations to deal with claiming dependents after divorce. The default rule is the custodial parent gets to claim the children on the taxes. While, Illinois may no longer use the terms "child custody" or "custodial parent", the IRS still does. The IRS considers the parent that lives with the children most of the time to be the custodial parent.

The Non-Custodial Parent

However, there are two exceptions to the IRS rule presuming the custodial parent will take the dependency exemption for the children. The first one is if there is a multiple support agreement in place. With a multiple support agreement, the parents alternate years claiming the dependency exemptions for the children. The IRS requires the taxpayer claiming the exemption to file Form 2120, with the other parent’s signature.

The second exception is if the custodial parent relinquishes the exemption using IRS Form 8332. When the custodial parent relinquishes the exemption, he or she must file Form 8332 every year the exemption is relinquished.

If both parents try and claim the same child or children on their taxes, they may both find their tax returns frozen, and subject to an audit. The parent who wrongfully claimed the child may be subject to fines and penalties.

Planning Ahead

Part of any discussion about allocation of parental responsibilities, parenting time, and child support should be a discussion about who will get to claim the children on his or her tax return. Any judgment should require both parents to cooperate and execute any IRS forms needed to effectuate the judgment.

Especially in cases where there are multiple children, the dependency exemption can be quite valuable. If the tax issues are not addressed up front, they can resurface and cause trouble down the road.

If you have questions regarding claiming children as dependents, chills support, parenting time, allocation of parental responsibilities, or any other family law issue, we can help. Contact the experienced Arlington Heights family law attorneys at A. Traub & Associates today. We will work hard to provide the answers you need and assist you in building a better future yourself and your children. 

Sources:

http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2086

https://www.irs.gov/publications/p504/ar02.html

https://www.irs.gov/pub/irs-pdf/p501.pdf