No one doubts that divorce can be emotional, psychologically and financially taxing on all parties involved. But what divorcing couples may not realize is that divorce, particularly divorce with children, has an impact on how one files taxes with the Internal Revenue Service.
Michigan residents who are divorced or in the process of seeking a divorce may find the following information on taxes, and divorce helpful for the upcoming year. Currently, the IRS has special rules in the tax code which govern post-divorce situations. Particularly when it comes to divorce with unemancipated or minor children, divorced or divorcing couple should be aware of the dependency exemption.
The dependency exemption depends on the custody arrangement. Under the current special IRS rule, the custodial parent can claim this exemption, which is for about $3,950, for each child they have custody of. It is possible for the parent without custody to claim this exemption with the consent of the custodial parent, and by completing an IRS form. If the parent without custody is claiming this exemption, then they must attach this form annually or each year they are claiming the exemption.
Where the parent with custody allows the parent without custody to claim the dependency exemption, the custodial parent can still file taxes as the head of the household, may still quality for the earned income credit, the child care credit and tax exclusion of child care benefits. If a parent who cannot use this exemption does so anyway, then their tax return will likely be rejected and resolving the matter with the IRS can be a lengthy and complex process.
When it comes to child support, it is neither deductible for the paying parent paying it nor taxable income for the receiving parent. Alimony or spousal support on the other hand is taxable income. The party ordered to pay spousal support can deduct it.
Many divorcing couple likely won't think of how the divorce will impact taxes. Thus, how a divorce settlement is structured will matter. Consulting with both a family law attorney and a tax professional may be helpful.
Source: FOX Business, "Taxes and Divorce, What You Need to Know," Bonnie Lee, Dec. 1, 2014