Child Tax Exemptions, Deductions & Divorce

February 28, 2017

taxes-and-1040

Q: What is a dependent exemption?

  • As applied to your child, the dependent exemption is an amount of money that you are permitted to subtract from your adjusted gross income. The dependent exemption reduces the amount of income on which you will be taxed (in effect, an exemption operates the same as a deduction).
  • In 2016, the dependent exemption is $4,050 per child. The right to claim exemptions, however, phases out at higher income levels. In 2016, the phase-out begins at $259,400 for single parents and $285,380 for single parents who claim head of household status.

Q: How is the right to claim a child’s dependent exemption determined in a divorce situation?

  • Only one parent may claim a dependent child on his or her tax return in any given year. The parent who claims that child as his or her dependent is also the parent who claims that child’s dependent exemption.
  • According to the IRS, the default parent, in terms of claiming the dependent exemption for a child in a divorce situation, is the one with whom the child lives for greater than 50% of the time during that tax year. (Note: The IRS refers to the parent with whom their child lives for greater than 50% of the year as the “custodial parent.”)
  • In 50%/50% custody situations, the default parent is the parent with the higher adjusted gross income.

 

Q: Can the non-custodial parent ever claim a child’s dependent exemption on his or her tax return?

  • If the divorcing parents agree that the child’s dependent exemption may be claimed by the non-custodial parent, the IRS will allow this.
  • Such an agreement should be clearly stated in the parents’ Property Settlement Agreement (PSA) and Final Order of Divorce/Divorce Decree.
  • The custodial parent will need to complete and sign IRS Form 8332 each and every year that the non-custodial parent is permitted (by the PSA) to claim that child’s dependent exemption. The non-custodial parent must attach this form to his or her tax return every year that he or she claims that child’s dependent exemption.
  • Parents also have the option of alternating their child’s dependency exemption on an every-other-year basis, or as they otherwise agree.

 

Q: Are there other tax benefits that are attached to the child’s dependent exemption?

  • The parent who claims the child’s dependent exemption is also the parent who is eligible for the child tax credit (if applicable, depending on the parent’s income).
  • The parent who claims the child’s dependent exemption is also the parent eligible to claim that child’s educational tax credits, also known as college credits and, as of 2015 the American Opportunity Credit (if applicable, depending on the parent’s income and other factors)

 

Q: Are there tax benefits that remain with the custodial parent (despite the non-custodial parent claiming that child’s dependent exemption)?

  • The custodial parent remains the only parent eligible to claim the earned income tax credit.
  • Also, only the custodial parent (not necessarily the parent who claims that child’s dependent exemption) is eligible to claim the child and dependent care tax credit (also known as the day care credit).
  • Note: The same rules apply if a parent is eligible, through his or her place of employment, for a Flexible Spending Account (FSA).
  • If the parents share the child’s custody 50%/50%, the IRS defaults to the parent with the higher adjusted gross income, i.e., the parent with the higher adjusted gross income is treated as if he or she is the “custodial parent.”
  • In 50%/50% custody situations, parents often negotiate which one will have the custodial parent benefits for income tax purposes (as opposed to letting the IRS default dictate the outcome).
    • This is custom, but not specifically addressed by the IRS.
    • The IRS reasoning: There are 365 days in a year (an odd number). Therefore, a true 50%/50% custody share is impossible.
    • NOTE: Only one parent may claim the earned income tax credit and the child and dependent care tax credit.

 

Q: Which parent is eligible to file as Head of Household?

  • A parent who is single and has a dependent child living in his or her home may be eligible to file taxes as “head of household.
  • Only the custodial parent – the parent who cares for the child greater than 50% of the time – is eligible to file his or her taxes as head of household.
  • Unlike the dependent child exemption, the right to file as head of household is not exchangeable between parents.
  • The head of household tax status, versus filing as “single,” often lowers your tax bill (but phases out at higher income levels).
    • Head of household status often lowers your tax rate, thereby lowering your tax bill. .
    • If you claim the standard deduction (versus itemizing your deductions), that number will be higher, thereby lowering your tax bill.
  • The specific criteria follows:
  • Your spouse did not live in your home for the last 6 months of the year for which the taxes are filed (this applies to parents who are separated, but not yet divorced).
  • You will not be filing a joint return with your spouse (this applies to parents who are separated, but not yet divorced).
  • You paid over half the cost of maintaining your home for that tax year.
  • Your child lived in your home over half the year, i.e., you are the “custodial parent” (even if the other parent claims that child’s dependency exemption).
  • Your child is considered a “qualifying child”, meaning he or she has not turned 19 by the end of the tax year (if not a full-time student), or is younger than 24 at the end of the tax year (if a full-time student for at least 5 months during the tax year), or is permanently disabled.
  • In 50%/50% custody situations, parents often negotiate which one will have the right to file as head of household (as opposed to letting the IRS default – that only the custodial parent is permitted to file as head of household – dictate the outcome).
    • This is custom, but not specifically addressed by the IRS.
    • The IRS reasoning: There are 365 days in a year (an odd number). Therefore, a true 50%/50% custody share is impossible.
    • NOTE: Only one parent may file as head of household (as it related to a child).
    • With more than one child, in a 50%/50% custody situation, parents sometimes each care for a child greater than 50% of the time and, as a result, each parent is potentially eligible to file their taxes as head of household.

 

Q: At what age is a child no longer considered a “dependent”

  • To qualify as a dependent, your child must be under the age of 19 on December 31 of the tax year in question.
  • However, if your child is a full-time student (as defined by his or her school), he or she may be your dependent for income tax purposes as long as he or she is under the age of 24 on December 31 of the tax year in question.
  • If your child is permanently and totally disabled, there is no age limit.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.

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Valentine’s Day Special: 6 Tips for Dating After Divorce

February 9, 2016

Valentines-Day-Hero-2-H

Valentine’s Day is just around the corner, so I’ve prepared a post-divorce dating survival cheat sheet for you. Here are 6 tips to keep in mind while dipping your toe back in that pond.

  1. Pay attention to everything your date says.  Most dates will expose their “skeletons” by at least the third date.  If you’re falling for that new guy or gal, though, the tendency is to not hear what your date is telling you.  Don’t let this happen. If you spot a red flag – a very difficult personality, a messed-up family life, an inability to hold a job, or another scary situation, do not ignore!  Once, I went over to a date’s house (after we had a few dates and I felt safe) after dinner and noticed that he still had family pictures up in the common areas of his house.  Nice, right?  But, every image of his wife had black tape over her face!  Imagine his little kids having to look at that picture of Mommy with tape over her face every time they spent time at Daddy’s house.  It was creepy – and alarming.  Goodbye, masked man.
  2. Be yourself.  If you’re not being true to yourself, you’ll probably not be able to do a very job at “scrutinizing” your date, either.  It’s a lot of work to pretend to be someone you are not . . . even a little bit.  Your intuition will be sharpest when you are relaxed.
  3. Go with your gut.  If you think your date is jerk, or a narcissist, or a phony, or whatever else you might not like, you are probably right.  Don’t make excuses for your date’s behavior or tasteless conversational choices.  Move on. 
  4. Leave your rescuing persona at home.  If you are the type of super-empathetic person – perhaps a true caretaker by heart — who tends to rescue others in need, you do not want to date until you put your own boundaries firmly in place.  People who have been through a divorce need nurturance; not more trouble.  Know your boundaries and keep them firmly in place. 
  5. Be ready for rejection.  If you can’t deal with rejection – or even mild criticism — , stick with going out to dinner with trusted friends.  Dating takes thick skin . . . and it might take a good, long while after your divorce to have the emotional fortitude to deal with the rough-and-tumble of dating.
  6. Chemistry is Key.  Attraction is either there or not.  There was one sweet man I went to dinner with who was smart, open-minded, a good conversationalist and well-liked by friends and colleagues.  But, when it was time for a goodnight kiss, I struggled.  I actually felt grossed out!  Let’s be honest.  You can’t fake romantic attraction and, even if you tried to just to have the company of another, it would most surely end in disaster for one or both of you.  I moved on . . . and you should, too.

And don’t forget to have fun!

 

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


Divorce Rates at Lowest Level; but So Are Marriages

December 8, 2015

Though it may seem that everyone you know is getting a divorce, the divorce rate has actually declined by 23% since 1970!scissors

This is according to a new report published by the National Center for Family and Marriage Research Family Profile (NCFMR), Divorce Rate in the U.S.: Geographic Variation, 2014 (FP-15-18), issued by Bowling Green State University in Ohio. After peaking in 1979 (22.8 divorces per 1,000 married women), the divorce rate declined until 2000 when it began to rise again. The divorce rate fluctuated between 2005 and 2010, but since 2010, it dropped steadily. In 2014, 17.6 women divorced per 1,000 married women – a 23% drop since 1970. (Data is based on statistics from 1970-2000, National Center for Health Statistics; 2008-2014, U.S. Census Bureau, American Community Survey, 1-yr est.) http://www.bgsu.edu/ncfmr/resources/data/family-profiles/eickmeyer-divorce-rate-us-geo-2014-fp-15-18.html

Married couples do not get along better than they used to . . . couples simply skip the marriage step and head right to parenthood.

If there is no marriage, of course, there does not need to be a divorce. When asked about the declining divorce rate, Wendy D. Manning, co-director of the NCFMR, clarified that “I think it is important to consider that the marriage rate is also declining so there are fewer men and women marrying.” https://www.bgsu.edu/ncfmr.html

However, just because a mom and dad do not get married, does not mean that they do not have a relationship, live together, parent together and, from the child’s perspective, enjoy a family life together just like their married counterparts.

“Living together” can have devastating financial consequences to families when mom and dad break up.

From my perspective as a family mediator, parental break-ups – without the “benefit” of divorce —  mean that the children born of those relationships will suffer through the same repercussions as do children whose divorcing parents were married – but without many of the financial protections that are built into the divorce process.  

Often times, parents have spent many years building a life together.  However, unless they are married, there will be very little financial protection for the economic life that they built as a couple.  If both parents are working and make a good living, this is not always the end of the world. But, in those cases where the mom or dad is a stay-at-home parent, such a break-up can be financially devastating to that parent and child.

What is stopping couples from getting married today?

From everything that I have seen over the 14 years that I have worked with countless families in my practice as a divorce mediator, divorce lawyer and family court hearing officer, unless both parties have at least a bachelor’s degree and some money in the bank—or at least access to money—couples are often choosing to not get married in the first place. The traditional “family order” is being reversed at an increasing rate: Kids are being born first; mom and dad may or may not decide to get married in the future; and mom and dad may or may not live together, without tying the knot.  This has become the norm.

Top 3 Reasons Couples Hold Off the Wedding Plans:

  1. Couples are waiting to have enough money in the bank to have their “dream ceremony.”
  2. Couples are waiting until at least one of them has his or her career on track.
  3. Couples have lived through their own parents’ awful divorce—and it scared them to death.

Are miserable married couples staying together in greater numbers than they used to?

Though the statistics are not completely clear, it seems that couples are trying harder to stay together.  In my mediation practice, the vast majority of clients have done of everything in their power to stay together before they make the decision to divorce.

Top 3 Reasons Couples Avoid Divorce:

  1. These days, many married people have already been through a divorce – their parents’ divorce. They do not want to repeat the pain.
  2. Married couples with children (as opposed to parents who are not married) tend have higher levels of education, higher incomes, are older when they have children, and might just be better prepared to weather the storms of marriage and kids.
  3. Divorce is very expensive.

It is not only expensive to get divorced, but it is incredibly costly to maintain two independent households on less money than the couple originally had when they were maintaining only one.   Most couples know this and, for the most part, would rather see their hard earned money and savings be used for their children and building a new life for themselves, rather than disappearing into the pockets of their divorce lawyers.

If divorce is impossible to avoid, settling with a mediator is a much less expensive and emotionally damaging experience than litigating with a divorce lawyer.  Mediation is also an excellent settlement choice for unmarried parents who are working on custody and child support issues.  

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


How Does Mediation Save Divorcing Couples Money?

November 23, 2015

It seems that everything is getting more expensive these days, and divorce is no exception. Luckily, mediation can be a good way to save money during the divorce process. Here are some simple ways mediation can help:

  • No “Surprise” Billing. Most work is done in the mediation room and it is easy to keep track of what the divorce settlement process is actually costing.  Mediators don’t nickel and dime their clients to death.
  • One Mediator, Not Two Attorneys. When both parties have their own attorney, the $300-$500 per hour fees rack up quickly, especially when multiplied by two attorneys (as opposed to only one mediator at an often lower hourly fee).
  • Get to the Point. Mediation is less strategically oriented than litigation.  This allows clients to address their and their children’s real needs faster and with a focus on mutual agreement versus winning the fight.
  • Sensible Information Gathering Process. There is no formal “discovery” in mediation.  Discovery is the court-supervised and procedurally complex method that attorneys use to gather information in a divorce case.  Keeping the information gathering process to its essential elements saves clients thousands of dollars that they will need to run two households where there once was only one.
  • Focus on Present and Future, Not Past.  The focus in mediation is on helping the parties to find common ground and mutual agreement that will allow them to start their and their children’s new lives in as good a position as possible considering the circumstances.  Past behaviors and transgressions are usually minimized, unless they directly impact the present or future.  This is the opposite of litigation, where past wrongs and transgressions are often the focus of the fight itself.

save-money1Don’t let tight finances keep you from moving forward with a divorce when it’s the best decision for you and your family. Speak to a mediator and see how they can help.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


The 3 A’s of Avoiding Divorce

August 18, 2015

As a certified divorce mediator and a former divorce attorney, I’ve worked with hundreds of couples over 13 years in family law who were filing for divorce. Here’s what I hear from clients — over and over again – as the key reasons for the break-up of their marriage. I call them the 3 A’s:

Lack of Affection. Though cliché, it’s true: When baby makes three, both parents are often consumed with showering their new baby with the most affection possible. As the child grows, couples forget to smooch their spouses, too.

Lack of Attention. Couples often feel ignored in their roles as spouses, parents and, often times, human beings! It’s no secret that jobs, child-rearing, in-laws, financial worries and responsibilities of running a home eat up your time and energy. If you want to save your marriage, though, start by giving your spouse the focus that or she deserves and needs.  Be intuitive, remember what your husband or wife needed back when you were dating, and try and give him or her that level of attention that you, too, need in order to feel secure in your relationship.

Lack of Appreciation. This is perhaps the biggest contributing factor in the divorcing clients that I work with — I hear it, in one form or another, from every set of mediation clients that I encounter. In many cases, women feel they do the lion’s share of the homemaking. When the kids were born, they changed around their priorities. The husbands, or so I hear, didn’t change their everyday lives quite as drastically as did the wives. The husbands, often times, feel that they are not appreciated for their financial contributions and the actual time that they do spend with the children. Each resents the other for longer hours put in at work and chores, and forgets to thank the other partner for keeping the family enterprise afloat. One thing that helps? Parents need to divide and conquer the mundane tasks of everyday life. If mom is best at details, let her do the details: whether it’s party-planning or setting up that 509 for Junior. But dad needs to do the other stuff, like preparing taxes or working with the kitchen contractor. The key is quite simple: Work hard at appreciating what the other is doing and know that 50/50 is not always a practical goal to attain depending on each others’ personalities and priorities.

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


The Effects of Parenting By Role Modeling

July 14, 2015

report-card-parents-happyAll parents want to raise, happy, healthy, successful, and altruistic children.  While there are many ways to impact and influence a child’s future, role modeling is one of the far most important factors.  There is a clear link between the effects of role modeling on children’s futures.  Statistics show:

  • Parents with good self-esteem tend to raise children with more secure self-esteem.
  • Parents who succeed in education tend to have children who meet and even surpass their parents’ accomplishments.
  • Children of divorced families are more likely to divorce (Parenting Exchange)

Children’s behavioral habits are shaped by not only being told what is correct, but also by observing correct behavior.  Whether or not a parent realizes it, his or her child is always watching, listening, overhearing, and observing a parent’s actions.  It is easy for parents to throw out don’ts like “don’t drink”, “don’t smoke”, and “don’t lie”; it is harder for parents to practice what they preach.  For example a parent may tell his or her child that smoking is unhealthy and that he should never smoke.  Sure, the child may understand that smoking is unhealthy, but if the child sees a cigarette hidden in his mom’s purse or smells smoke on his dad, the child will wonder how unhealthy can smoking really be, if his parents do it when he is not around?

Parents can work on modeling through his or her own actions by considering how you:

  • Handle stress and frustration
  • Respond to problems
  • Express anger and other emotions
  • Treat other people
  • Deal with competition, responsibilities, loss, mistakes
  • Celebrate special occasions
  • Take care of yourself (what you eat, how much you exercise, balance your commitments) (The Center for Parenting Education)

Looking back on my childhood my parents always were always positive role models.  Despite being the mother of two children, my mother worked my entire childhood.  This did not stop her from getting us involved in sports, clubs, and providing us with a healthy dinner every night. My dad worked just as hard as my mom. I would often wake up in the morning finding that he had already left for work and he would not return until I was getting ready for bed that evening.  From a young age I realized that my parents worked this hard for my brother and I to provide a promising future for the both of us. This made me value my education similar to the way they valued their careers.

My accomplishments reflect the impact my parents had on me. I graduated from Virginia Tech in 3 and a half years, was moved out and living independently from my parents by the age of 22, and now I am headed to law school this August.  My parents not only pushed me verbally to work this hard, they showed me that working hard pays off, as they are both comfortably retired in their 50’s.   I aim to be just as successful, if not more, as my mom and dad.  When I do reach their level of success, I know I will thank them for always being the two most influential role models in my life.

Citations:

http://www.easternflorida.edu/community-resources/child-development-centers/parent-resource-library/documents/parents-powerful-role-models.pdf

http://centerforparentingeducation.org/library-of-articles/focus-parents/role-model-promise-peril/

Written by Jessica Wilds, Mediation Assistant

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


Harsh Exposure of Divorce Lawyers & Courts: The Divorce Corp Documentary

July 7, 2015

UYe2xpOm.jpegDivorce Corp http://www.divorcecorp.com/ is a 2014 documentary film, directed by Joe Sorge, that exposes the inner workings and, in their own words, “the appalling waste and shameless collusive practices” seen daily in U.S. family law courts. This film presents a shocking viewpoint on the divorce industry, divorce lawyer practice, and the family law court system in the United States.   Divorce Corp’s goal is to make the viewer feel enraged toward the family law courts and the divorce attorneys who, they say, take advantage of individuals who are in a weakened emotional state.

The statistics presented in Divorce Corp are alarming.  For example, the producers estimate the total costs of divorce to be $50 Billion Dollars per year! In relatable financial terms, Divorce Corp estimates that the total dollars spent by Americans on their divorces, each year, is equal to the dollars needed:

  • To produce a healthy lunch for every child, every day, grade school through high school, in North America, South America, and Africa;
  • To pay the tuition for 5 million college students;
  • To fund the research and development of 50 new medicines each year.

While these statistics are tremendous, they do not compare to the wickedness that Divorce Corp asserts that the family law court system and their main players, the divorce attorneys, are capable of. The goal of Sorge and his guest “experts” is to prove that there is mass corruption in the family law courts in the United States.

They spend much time on the fact that family law courts are “courts of equity”, meaning that there are no juries and no right to an attorney –- despite the fact that people’s basic rights, such as the right to raise and enjoy the companionship of one’s children and the right to use and distribute one’s own hard earned money as the earner sees fit — are taken from them every day in divorce court.

Judges, they tell the viewer, have the authority to order complete liquidation of the parties’ assets and to issue restraining orders, even when there is very little evidence to support such a deprivation of liberty and seizure of real estate, personal property and money. Divorce Corp presents these facts in such a light as to make the viewer almost queasy at the thought of how one all-powerful judge can make extreme decisions, without even the nominal due process protections afforded criminals, and how an individual can be completely railroaded by the family law court – and pay for that railroading out of his or her own pocket!

The facts and statistics that Divorce Corp presents are deeply unsettling; but a skeptical eye is necessary considering the extreme sensational manner in which the information is presented. The producers of this documentary film focus on the absolute worst-case divorce scenarios and only showcase the most egregious of problems that individuals have had with family law judges. Though there is no doubt that these terrible situations occur, most reasonable viewers would have to wonder just how often and/or how likely these incredibly horrendous situations arise?  Divorce Corp’s modus operandi is to make it seem as if everyone getting a divorce will be severely overcharged by their divorce attorney and will, chances are, experience a corrupt judge who is out to ruin one of the spouse’s lives.

Though Divorce Corp did a sensational job of presenting the horrors of the divorce industry, divorce lawyers and the family law courts, it did not offer an alternative solution to that system, nor did the writers, director or “experts” provide any guidance whatsoever as to what could be done to reform the family law court system. No alternatives to litigation were presented and this is a shame considering there is a very effective and sensible alternative to divorce litigation: Mediation.

Parties that mediate the settlement of their divorce are able to avoid the court system and remain in control of their children, their assets and their future.  The parties create their own personalized settlement agreements, which include all matters of custody, child support, spousal support and the distribution of property and debt, by working together, with the help of a neutral party, i.e. the Mediator.   The Mediator works with the parties in four specific areas:

  1. Pinpointing relevant issues for settlement (usually eliminating strictly emotional issues that merely inflame parties and fuel litigious behavior);
  2. Gathering information about the children and all other relevant factual and financial information necessary for the parties to make sound settlement decisions for the present and the future (as much as practically possible);
  3. Sharing of information by the Mediator which is important for the parties in making fair and informed settlement decisions (e.g. divorce law and legal culture in the area, divorce tax law, expert information related to the effect of divorce on children and potential financial implications of various settlement decisions); and
  4. Assisting the parties in their negotiations and in reaching compromises that are mutually agreed and that give each of them the best possible opportunity for a fresh start.

Mediation prevents one spouse from gaining power over the other spouse, eliminates the aspect of an all powerful judge, helps individualize the settlement based on the needs of the family and costs a fraction of what divorce litigation costs.  As the producers of Divorce Corp correctly point out, litigation often creates more problems and difficulties for divorcing parties than it solves. Instead of focusing on helping divorcing men and women move forward with their lives, litigation tends to drag them back through all the difficulties of a marriage that has, for all intents and purposes, already ended.

Written by Jessica Wilds, Mediation Assistant

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


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