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Following a Divorce, Which Parent Takes the Tax Exemption for the Children?

As we start a new year, we will soon be dealing with last year’s tax returns.  A frequent question in divorce matters is whether the primary custodial parent (who receives child support payments) or the parent of alternate residence (who makes child support payments) is entitled to claim the child(ren) for tax exemption purposes on his/her federal and state income tax returns.  In most cases, this issue is a subject of negotiation and a frequent resolution involves the sharing of the tax exemptions.  Yet, if there is no agreement on the issue, many judges respond by indicating that the Family Court does not have the authority to order the primary parent to permit the parent of alternate residence to claim any exemptions, absent an agreement otherwise.  This results in the primary parent being entitled to all exemptions, every year.

The above response by the Family Court Judge is wrong!  In fact, on December 9, 2013, a New Jersey Superior Court Appellate Division opinion reaffirmed a 1989 Court decision which recognized that the Internal Revenue Code gave “a custodial parent the right to the exemption, subject to waiver by that parent”.  However, the Appellate Court concluded “that the Trial Court had the power to exercise authority to effectively allocate exemptions through use of its equitable power”.  In other words, the Appellate Courts required the Trial Judge to consider the financial circumstance and determine what is fair, rather than rely on the Internal Revenue Code’s default of the exemption to the custodial parent.  It is noted, however, in order to be successful before a Trial Court, it will be necessary for the parent of alternate residence to demonstrate the relative benefit of the exemption to both parties and its impact on the funds available for support of the child.  This will require the Court’s consideration of tax returns filed, or to be filed, by both families.

The lesson learned from these cases is that the issue of sharing tax exemptions must be a subject of negotiation and agreed upon as part of a global Marital Settlement Agreement.  If no agreement is reached, the non-custodial parent (i.e., the parent of alternate residence) must establish the required proofs to demonstrate the fairness of sharing of the exemptions, or other proposal being made by the parent of alternate residence.

While the value of the exemptions in any given year may not be substantial, when we multiply the value of the exemptions over numerous years (especially in cases when the children are quite young), the exemption issue may involve substantial amounts.

Barry Chatzinoff, Esquire has been representing South Jersey residents in Matrimonial and Family Law matters for more than 30 years.

Law Office of Barry Chatzinoff, P.C.

120 Haddontowne Road, Cherry Hill, NJ 08034

(856) 685-1095


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