Important Tax Law Change That Affects Those That Have Children and Are Divorced Or Separated
Domestic relationships have changed in a revolutionary fashion between the beginning of the 20th and 21st centuries.
From extended families, to nuclear families, to single parent households where the parents were never married, nor ever intended to get married, and finally to same-sex relationships that are becoming more and more common.
While many are familiar with, and have opinions on these changes from a social standpoint, most people are not cognizant of the fact that changes on the social frontier impact far more than the interaction between the persons involved and the society around them.
Also affected are the legal and financial implicatons of such evolutionary or revolutionary changes.
We're going to leave the soical aspects of these changes to the anthropology and psychology professionals, the legal aspects to the students of jurisprudence, and focus on the financial aspects.
THE Q.
D.
R.
O.
IS KING..
..
...
NOT ANY MORE It used to be that, other than a few "oopsies," most people that had children were already married.
Even for the few "oopsies" it was custom for the couple involved to get married before the birth of the child (commonly known as a 'shotgun wedding'.
) But, with the predominance of single parent households, many of such parents who were never married, the law had to change, and did on July 2, 2008.
On that date the long standing dominance of the Qualified Domestic Relations order (better known by its vernacular QDRO or divorce decree), where taxes are concerned, ended.
It used to be that the IRS honored whatever was decided on in the QDRO.
In many cases, where the end of the marriage was somewhat civil, the parents agreed to split claiming the child/children for tax purposes on an every other year basis, or switch back forth if there was more than one child involved.
Unfortunately, in today's world, where there is often never a marriage, there obviously can never be a divorce, hence no decree.
The legal system has had to deal with how to rule on cases where the was never a marriage for some years now, and as of July '08, the IRS did too.
A MATTER OF TIME AND MONEY (IN THAT ORDER) Final reg.
1.
152-4(c) states that "a taxpayer can claim a dependency exemption for a child if the child is a qualifying child or a qualifying relative.
If the child is a qualifying child of parents who do not file a joint return, the child is the qualifying child of: - The parent with whom the child lived for a longer period of time during the year; or - If the child lived with both parents for an equal period of time, the parent with the higher AGI" I'm going to save the explanation of the "qualifying child" and "qualifying relative" for a future article as they are a topic in and of themselves, and can be tricky.
Aside from that though, I'm sure it's quite clear that if there is a dispute, the child's exemption (worth $3650 in Tax Year 2009) will be awarded to the parent who had custody of the child the majority of the time.
If that time is equal, then the parents' incomes come into play and the one with with the higher Adjusted Gross Income (AGI) gets to claim the child.
IF THE TIME ISN'T ON YOUR SIDE, ALL HOPE IS NOT LOST It is still possible for the parent that does not have custody the majority of the time (the "non-custodial parent") to get to claim the child's exemption.
It's just that the following conditions have to be met.
-The child's parents must be divorced, legally separated, separated under a written agreement, or lived apart at all times during the last six months of the year whether or not they were married.
-The parents provide over half the child's support for the year -The child is in the custody of one or both of the parents for more than half of the year.
and finally, one of the following statements is true: 1.
The custodial parent signs a "written declaration" that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the declaration to the noncustodial parent's return or 2.
A pre-1985 degree of divorce or separate maintenance or written separation agreement that applies to the current year provides that the noncustodial parent can claim the child as a dependent and the noncustodial parent provides at least $600 for the child's support during the year So the skinny on the noncustodial parent getting to claim the exemption, provided the first three provisions are met, is that you have to get the custodial parent to sign a declaration that the noncustodial parent will attach to their return.
Keep in mind that the declaration is only good for that tax year, and the following year a new declaration would need to be signed.
The pre-1985 divorce degree would be a tough one to comply with being that a child that was born in 1984 is now an adult and will be turning 26 this year.
Hopefully this article will help clarify things for those who have a child, and are not longer with that partner.
It also should help in financial planning matters for those who those are planning on getting a divorce or separating from a partner in the current year, with whom with they have children.
From extended families, to nuclear families, to single parent households where the parents were never married, nor ever intended to get married, and finally to same-sex relationships that are becoming more and more common.
While many are familiar with, and have opinions on these changes from a social standpoint, most people are not cognizant of the fact that changes on the social frontier impact far more than the interaction between the persons involved and the society around them.
Also affected are the legal and financial implicatons of such evolutionary or revolutionary changes.
We're going to leave the soical aspects of these changes to the anthropology and psychology professionals, the legal aspects to the students of jurisprudence, and focus on the financial aspects.
THE Q.
D.
R.
O.
IS KING..
..
...
NOT ANY MORE It used to be that, other than a few "oopsies," most people that had children were already married.
Even for the few "oopsies" it was custom for the couple involved to get married before the birth of the child (commonly known as a 'shotgun wedding'.
) But, with the predominance of single parent households, many of such parents who were never married, the law had to change, and did on July 2, 2008.
On that date the long standing dominance of the Qualified Domestic Relations order (better known by its vernacular QDRO or divorce decree), where taxes are concerned, ended.
It used to be that the IRS honored whatever was decided on in the QDRO.
In many cases, where the end of the marriage was somewhat civil, the parents agreed to split claiming the child/children for tax purposes on an every other year basis, or switch back forth if there was more than one child involved.
Unfortunately, in today's world, where there is often never a marriage, there obviously can never be a divorce, hence no decree.
The legal system has had to deal with how to rule on cases where the was never a marriage for some years now, and as of July '08, the IRS did too.
A MATTER OF TIME AND MONEY (IN THAT ORDER) Final reg.
1.
152-4(c) states that "a taxpayer can claim a dependency exemption for a child if the child is a qualifying child or a qualifying relative.
If the child is a qualifying child of parents who do not file a joint return, the child is the qualifying child of: - The parent with whom the child lived for a longer period of time during the year; or - If the child lived with both parents for an equal period of time, the parent with the higher AGI" I'm going to save the explanation of the "qualifying child" and "qualifying relative" for a future article as they are a topic in and of themselves, and can be tricky.
Aside from that though, I'm sure it's quite clear that if there is a dispute, the child's exemption (worth $3650 in Tax Year 2009) will be awarded to the parent who had custody of the child the majority of the time.
If that time is equal, then the parents' incomes come into play and the one with with the higher Adjusted Gross Income (AGI) gets to claim the child.
IF THE TIME ISN'T ON YOUR SIDE, ALL HOPE IS NOT LOST It is still possible for the parent that does not have custody the majority of the time (the "non-custodial parent") to get to claim the child's exemption.
It's just that the following conditions have to be met.
-The child's parents must be divorced, legally separated, separated under a written agreement, or lived apart at all times during the last six months of the year whether or not they were married.
-The parents provide over half the child's support for the year -The child is in the custody of one or both of the parents for more than half of the year.
and finally, one of the following statements is true: 1.
The custodial parent signs a "written declaration" that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the declaration to the noncustodial parent's return or 2.
A pre-1985 degree of divorce or separate maintenance or written separation agreement that applies to the current year provides that the noncustodial parent can claim the child as a dependent and the noncustodial parent provides at least $600 for the child's support during the year So the skinny on the noncustodial parent getting to claim the exemption, provided the first three provisions are met, is that you have to get the custodial parent to sign a declaration that the noncustodial parent will attach to their return.
Keep in mind that the declaration is only good for that tax year, and the following year a new declaration would need to be signed.
The pre-1985 divorce degree would be a tough one to comply with being that a child that was born in 1984 is now an adult and will be turning 26 this year.
Hopefully this article will help clarify things for those who have a child, and are not longer with that partner.
It also should help in financial planning matters for those who those are planning on getting a divorce or separating from a partner in the current year, with whom with they have children.