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Plan post-divorce tax liabilities during, not after a divorce

As a divorce attorney knows, the logistics of modern visitation agreements can be quite complicated. Spouses who are approaching their divorce with a spirit of cooperation may assume that dividing physical custody and parenting responsibilities equally between them might be the easiest solution. However, federal tax rules about which parent may claim a deduction for a dependent child may require parents to rethink their original plans. 

As a result of 2009 changes in federal tax law, it may not be possible for couples to indicate in a divorce decree which parent will be able to claim children as dependents. Rather, the dependency exemption on a tax return must now by accompanied by a copy of IRS Form 8332, signed by the custodial parent. In addition, the exemption imposes additional requirements, such as the qualifying child living with the parent who will be claiming the deduction for over half the year.

With the help of an experience divorce attorney, however, parents may be able to come up with creative parenting solutions that work around the limitations presented by tax law. For example, parents may decide to alternate who claims the dependency deduction from year to year.

Other parenting choices may also carry tax implications. For example, divorcing parents may decide that the parent with legal custody of the children should keep the family home. Yet only one parent will be able to claim the mortgage interest deduction after the divorce. In the event that a divorced parent decides that the family home is too big and decides to sell it, any gain on the principal residence may be limited to $250,000, which is half the amount that a married couple can realize.

Source: Reuters, “What's even worse than a divorce? For some, it's the taxes,” Lauren Young, April 10, 2014

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