COMMENTARY: Tax exemptions and judgments of divorce

By Marie E. Matyjaszek

Since my dog Verdict was born on April 15, I always remember her birthday and tax day, the former of course being a much more enjoyable holiday to celebrate. She wanted me to tell you that all birthday treats, bones and toys can be sent directly to her, "Verdict," care of my office.

When tax day rolls around each year, clients become concerned about who gets to claim Tommy as an income tax dependency exemption. It is often a disputed subject during the divorce as the exemption can provide significant financial benefit to a parent. Since 1985, the IRS mandates that the custodial parent receive the right to claim the child's exemption, unless the custodial parent has voluntarily agreed to release the exemption to the non-custodial parent in writing. Plenty of parents do agree to alternate the exemption each year if there is just one child, or each parent takes one child if there are two children, etc.

IRS Form 8332, "Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent," is the form that the parent needs to fill out. Part 1 provides for the release of the exemption for the current year only. Part 2 of the form provides for the release for all future years relative to that child's exemption. Part 3 allows for the revocation of the release of that claim. To check out the form yourself, go to http://www.irs.gov/pub/irs-pdf/f8332.pdf.

All of my Judgments of Divorce or other orders incorporating language about the child's income tax exemption require the parents to cooperate and fill out this form as it needs to be filed simultaneously with the non-custodial parent's income tax return. The IRS provides for exceptions to this depending on the date of your judgment or agreement, and if the language complies with what it deems to be "substantially similar to Form 8332."

Another common question that arises is whether or not the client can change the judgment's terms regarding which parent receives the exemption. Well, that depends on what the judgment states. Per Fear v Rogers, 207 Mich App 642 (1995), the child's tax exemption can be treated as part of the support provisions of the judgment or the property division provisions of a judgment. The Fear court stated that the exemption normally should be considered part of the child support award in a judgment, but the court "was not persuaded that the federal income tax dependency exemption is so intricately related to child support that it would be appropriate to preclude parties to a divorce action from ever choosing to treat the income tax dependency exemption as a property issue rather than a child support issue." Id. at 646.

So, it boils down to where the language is contained in your paperwork. If it is contained within the child support section, it is modifiable. Some reasons for modifying the exemption award would be a change of custody or parenting time--if the original parent awarded the exemption in the judgment no longer has custody, the parent who now has custody should be awarded the exemption.

If the language is contained within the property division section of the judgment, then it is treated as part of the property settlement, making it non-modifiable, absent an agreement between the parties to change it.

Wherever I place the exemption provision in the judgment I specifically state that both parties understand that the provision is either modifiable or non-modifiable in the future, so that everyone is on the same page and doesn't gripe that they had no idea whether or not it could be changed (although to be honest, the griping will likely occur regardless).

Be sure to check out where your income tax dependency exemption is contained in your paperwork and if applicable, complete IRS Form 8332 as this can save you from a headache when it comes around to tax time each year. I think we all agree that tax season causes enough strife as is.

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Marie E. Matyjaszek is an associate attorney at the Law Office of Robert Matyjaszek, PLLC, Jackson, Michigan. Her blog site is: http://legalbling.blogspot.com. She can be reached at (517) 787-0351 or matyjasz@hotmail.com.

Published: Fri, Mar 22, 2013