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October 11, 2015


Tax exemption for dependent children: Who gets it a divorce?

Two weeks ago, in our September 27 post, we wrote about how alimony payments affect taxes. Another aspect of divorce and taxes is allocation of the tax exemption for dependent children.

In this post, we will discuss some of the considerations involved in the use of that exemption.

Under the federal tax code, the exemption for dependent children – which allows for a certain amount to be deducted from income — goes to the “custodial” parent. The IRS defines the custodial parent as the parent with whom the child lived for the most nights.

But what if the number of nights was equal or roughly equal?

This can get quite complicated, particularly when a divorce or separation agreement speaks not so much of custody as “co-parenting” or, as in Texas, “joint conservatorship.”

For example, a child may spend significant time during the year with both parents after a divorce. The parenting schedule may call for the child to spend an equal number of nights with each parent.

IRS Publication 17 goes into considerable detail about the various considerations involved.

Of course, one conceivable resolution is for the parents to agree, as part of their divorce settlement, to assign the dependent child exemption to one of the parents. Or, if there are two children, the parents could agree to each take one of the exemptions. There are obviously other possibilities as well, if the parents have three or more children.

But what if the parents don’t have an agreement to share or assign the exemption and the child spent approximately the same number of nights (i.e., at least six months) with each parent?

If that situation arises, the IRS is prepared to look at which parent has the higher income.

In short, the considerations involving who gets to claim the dependency exemption are complicated. If you are going through a divorce, it is important to get knowledgeable legal counsel about how to proceed.

Tax Controversy