How do child custody arrangements affect income taxes?

For many Florida parents, settling child custody, child support and related decisions can be a daunting and often confusing process. One of the decisions that comes along with deciding child custody is which parent will be able to claim a child as a dependent on their annual income taxes. Though the tax filing deadline just passed, this a question that divorcing parents should consider any time of year.

The custodial parent, the parent who the children spend a majority of the year living with, is typically the parent who is able to claim their child as a dependent for tax purposes. This may not be the most intuitive situation, especially if the non-custodial parent provides significant child support.

The custodial parent is able, though, to concede their right to claim dependency to the non-custodial parent under certain circumstances. For this exception to apply for a divorced couple, several requirements must be met by the non-custodial parent. First, more than half of the child's yearly support must be provided by one or both of the parents. The parents must also have been legally divorced under a written declaration by the end of the tax year and have lived apart for at least the last six months of the year. The custodial parent is then able to sign documentation to legally transfer tax-dependency status of the child to the other parent.

In this way, the non-custodial parent is able to gain the dependent-exemption deduction as well as the child tax credit, which together can total a significant amount of money. The financial boost of these tax exemptions can be extremely beneficial to a parent. If a divorced couple has an amiable relationship, these sorts of agreements may work well if their individual circumstances warrant such action. Above all, divorced Florida couples often benefit from working together to peacefully settle issues involving their children, including income tax questions.

Source: The Wall Street Journal, "Who Gets the Child Tax Breaks After a Divorce," Bill Bischoff, March 31, 2012