Dependency Exemptions For Children Of Divorced Or Separated Parents
By Julian Block
To claim anyone as a dependent, the key requirement is the support test. As a general rule, you must furnish over half of the dependent’s total support for the year in question.
The over-half rule is subject to two important exceptions. The first one imposes a less stringent over-ten-percent requirement for someone who claims a dependent under a multiple support agreement.
The second exception applies to three categories of parents who claim exemptions for children who did not live with them during the year in question. A different set of rules comes into play when the parents are (1) divorced, (2) legally separated or (3) though they do not divorce or legally separate, were living apart at all times during the last six months of the calendar year.
General Rules on Custody of Exemptions. These no-questions-asked rules automatically award the exemption for a child (or children, as the case may be) to the parent who has custody for the greater part of the year. In most cases, that is the mother. It does not matter whether she actually provides over half of the support.
How custody is determined. According to the filing instructions for Form 1040, custody is usually determined by the terms of the most recent decree of divorce or separate maintenance, or a later custody decree. If there is no decree, use the written agreement.
What if neither a decree nor agreement establishes custody? Then the parent who has the physical custody of the child for the greater part of the year is considered to have custody of the child.
The filing instructions also tell you to follow this approach when the validity of a decree or agreement awarding custody is uncertain because of legal proceedings pending on the last day of the calendar year.
Suppose the parents are divorced or separated during the year and had joint custody of the child before the separation. Then the parent who has custody for the greater part of the rest of that year is considered to have custody of the child for the year.
Exceptions to general rules. Assume there is no decree or written agreement that gives custody to the mother and the exemption to the father. (If there is, the exemption belongs to the father, not the mother.)
In that case, assuming the mother with custody is willing to, she can sign IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents). By doing so, she gives the exemption to the father without custody.
To qualify for the exemption, the father must submit Form 8332 with his Form 1040 or Form 1040A. His paperwork is just beginning. He has to list on his return the number of dependent children who do not live with him because of divorce or separation, along with their Social Security numbers.
TIP. It might be worthwhile for the father to negotiate for the exemption. That could save more tax for him if his bracket is higher than the mother’s.
She has two options. The first is to sign Part I of Form 8332 and release the exemption for only the year in question. The second is to sign Part II and release it for either (1) a specified number of years or (2) all future years.
In most cases, the first option makes more sense for her. A one-year-at-a-time release mandates an annual renegotiation, a tactic that might help ensure that child-support payments are timely made.
Exception for pre-1985 divorce or legal separation. There is another important exception for parents who divorced or legally separated before 1985. The exception applies where there is a divorce or separation decree or a written agreement signed before the start of 1985 that gives custody to the mother and the exemptions to the father. In that case, the exemptions belong to him for, say, 2002, provided he contributed at least $600 toward the support of each child.
CAUTION. The rules for divorced or legally separated parents apply only if they pass a two-step test: (1) Their child received more than 50 percent of his or her total support from them during 2002 and (2) spent more than half of the year with one or both of them. Otherwise, the exemption can go only to the person who furnishes more than 50 percent of the child’s support or qualifies for the exemption under a multiple-support agreement.
EXAMPLE. Neither the father nor the mother is entitled to the exemption when a doting grandparent, whether out of generosity or necessity, provided more than 50 percent of the child’s support or had custody of the child for more than six months.
Medical Expenses. At one time, a child’s medical expenses paid by a divorced or separated parent were deductible by that parent only if the parent could claim an exemption for the child. Now, though, it no longer matters which parent gets the exemption. If either parent claims an exemption for a child under the rules for divorced or separated parents, each parent can deduct those medical expenses that he or she pays for the child.