Child Exemptions in a Divorce Case

The Internal Revenue Code (IRC) 152(e) provides the rule governing dependency exemptions for children of divorce or separated parents. The above rule applies provided that the parents on a combined basis provide more than half of the child support for the year and have custody for more than half the  year. IRC 152(e) states that the parent who has physical custody of the child for more than half the year (custodial parent) is automatically entitled to claim the dependency exemption. There is an exception, however, that allows the custodial parent to give a non-custodial parent the right to claim the designated child as a dependent. The custodial parent must execute a written waiver releasing the exemption to the non-custodial parent for a single year, a specified number of years or for all future years. The custodial parent executes IRS Form 8332 which the non-custodial parent must attach to his or her income tax return. In order for the “non-custodial parent rule” to apply four (4) requirements must be met: 1. Over half of the child support for the year must be provided by one or both parents. 2. Parents must be divorced or separated under a written agreement at the end of the year or have lived apart for the last six (6) months of the year. 3. The child must be in the custody of one or both parents for over half the year. 4. The custodial parent must sign a written declaration releasing to the non-custodial parent the right to claim the designated child as a dependent for the year. (IRS Form 8332). The Michigan Court of Appeals has held that the State Courts have the authority to award dependency exemptions for children of the marriage. It is also of note that parties are free to agree upon the allocation of exemptions. Once agreed to, the provision becomes enforceable as a Court Order. Whether parties agree on the allocation of exemptions for children or it is decided by a Court, it is important to review all information concerning tax consequences of a divorce. IRS Publication 504 has detailed information concerning all tax breaks and exclusions for people who are divorcing or separated. * This information is for informational purposes only and should not be considered to be tax advice.

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