It does not always occur to divorcing parents to consider who can claim the children as dependents on their tax returns after the marriage is officially over. The IRS has specific rules that govern this question, but that do give the parties flexibility if they want to enter into an agreement to designate who will claim them and when.
IRS basics for claiming children after divorce
Divorced parents of dependent children may not split the tax benefit of the exemption between their returns. Only one divorced parent in a tax year may claim a child as a dependent. To qualify as a dependent, a child must:
- Be a biological, adopted, step- or foster child (or the taxpayer’s sibling or stepsibling) or a descendant of any of these (like a nephew or niece)
- Be a minor at the end of the year, a student under age 24 at the end of the year or any age if “permanently and totally disabled”
- Not have been self-supporting during the year for more than half of their own needs
- Not file a joint return with another person except to get a refund
- Be a U.S. citizen, resident alien or national; or Canadian or Mexican resident; with exception for some adopted kids
- Live with the parent more than half of the year
The IRS has rules for counting nights if the division is close to equal between stays at parental residences, and in irregular, unusual or gray areas (like sleepaway camp, overnight at a friend’s home, vacations and similar circumstances).
But for divorced parents under this IRS definition, the “custodial parent” usually is the one who can claim the child as a dependent because they tend to have the child more nights during the year. If the nights are equally split, the custodial parent is the one who has the higher adjusted gross income (AGI).
Parties can contract to change who claims the children
Divorcing parents may negotiate an agreement to allow the noncustodial parent (as defined by the IRS) to claim the dependency exemption for specific years. This can be part of a larger marital settlement agreement (MSA) or a standalone agreement that the parties could ask the judge to incorporate into the final divorce order. The other parent must agree to execute IRS Form 8332 giving permission or a similar statement for the noncustodial parent to attach to their return.
This is a high-level look at issues that can be complex. Your family lawyer can provide advice about dependency in the tax context as well as handling other child-related tax benefits in divorce. They may involve a tax professional in unique situations.
