Going through a divorce determination is difficult. When children are involved, it becomes even more complicated. In addition to dealing with issues focusing on the distribution of property and how to handle retirement assets, child custody and child support arrangements must also be made. During these negotiations it can be easy to gloss over some of the more important matters, like taxes.
A recent article in Forbes addressed this issue. Unfortunately, it is not uncommon for a parent to go through a divorce settlement discussion and be lead to believe that if the noncustodial parent pays the agreed upon child support that parent can take the dependent exemption on his or her taxes, even though the child does not live with that individual. In some cases, this goes smoothly. In others, the IRS can deny the exemption. Ideally, the initial conversation during the divorce determination will include the proper paperwork. This is important because in most cases a divorce determination alone does not suffice to grant this exception. Additional forms are generally needed, most notably Form 8332.
Importance of Form 8332
Form 8332 is a tax document that allows a custodial parent to pass the tax exemption for a dependent child to the noncustodial parent. In order for the IRS to honor this request, the form must be completed by the custodial parent and attached to the noncustodial parent’s tax forms.
It is important to note that use of this form is not the only way to receive this exemption. There are some instances where a divorce decree or separation agreement can suffice, but it must be used properly. The document must specifically state that the noncustodial parent can claim the child as a dependent on his or her tax documents, the custodial parent will refrain from claiming the child as a dependent and it must clearly specify which years the noncustodial parent can claim the exemption.
Revocation of release of exemption
The noncustodial parent should also be aware that the agreement can be canceled. The custodial parent can revoke the release of his or her right to take the dependent child tax exemption. This can be done if the parent made a reasonable effort to give written notice to the noncustodial parent before the new-year. The custodial parent must than file a Form 8332 to use the exemption and attach a copy of the revocation to the tax return.
Determining which method is right to release the exemption to the other parent or the proper process for revoking the exemption depends on each individual situation. As a result, parents attempting to adjust the exemptions should contact an experienced family law attorney to help guide them through the process.