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Who gets to claim the Tax credit for the Child Dependency Exemption after a divorce?

An exemption is an amount of money you can subtract from your Adjusted Gross Income ("AGI") when calculating your tax burden, which can result in smaller tax bill. Parents may be able to claim an exemption for each qualifying child, called a Child Dependency Exemption ("CDE"). A child can only be claimed by one parent per year. As such, one of the collateral issues to a divorce with children is which parent gets to claim the children as a CDE on their personal tax return.

In Colorado, the parties can choose which parent will receive the exemption. If the parties cannot agree on how to divide the CDE, a statutory rule governs the same. See, Colo. Rev. Stat. § 14-10-115(12). First, in order to receive the CDE, a parent must have paid all court-ordered child support for that tax year and claiming the CDE must result in a tax benefit.

If those factors are met, the Court will determine the contribution attributed to the child by each parent based on the percentage contributed to the parties' gross income. It is important to note that the CDE does not depend on who the child lives with the majority of the time. If the minority time parent has paid all court ordered child support, they have a right under the statute to claim the CDE. Similarly, if the minority time parent makes significantly more income than the majority time parent, and is current on child support payments, he/she is entitled to claim the dependency exemption more often than the majority time parent.

Example

Father makes $10,000 per year and Mother makes $5,000.00 per year. The parties combined gross income is $15,000.00 per year. Mother makes 1/3 of the parties combined gross income and Father makes 2/3 of the parties combined gross income.

Under Colo. Rev. Stat. § 14-10-115(12), Father is entitled to 2/3 of the dependency exemptions and mother is entitled to 1/3 of the dependency exemptions. Accordingly, the Court would likely allocate the CDE for Father to claim the child for two (2) out of every three (3) years.

It should be noted that the parties can agree to negotiate or change this outcome and not follow this statute. This is just one subset of the many intricate matters that can be negotiated by a skilled family law attorney to get you the best possible outcome in your divorce.

UPDATE

Beginning January 1, 2018, dependency exemptions have been repealed and eliminated.

Child Tax Credit 2018

To make up for the loss of the Dependency Exemption the Child Tax Credit has been doubled and is now $2000.00 per child. The Child Tax credit reduces your tax liability. The child tax credit is a credit that offsets the taxes you owe dollar for dollar and is available if you have a child younger than age 17 at the end of the year,

After a Divorce who can claim the Child Tax Credit?

For tax purposes, a child is usually treated as "belonging" to the parent who has custody for the greater part of the year. That parent is called the custodial parent. The other parent is called the non-custodial parent.

Unlike the repealed Dependency Exemption, there is no statue in Colorado that governs how this tax credit should be divided amongst the custodial and non-custodial parent in the event the parents can't agree. However, the non-custodial parent and custodial parent can agree to divide the child tax credit as part of a divorce settlement provided the following requirements are met:

1. Support Requirement: Over half the child's support for the year must be provided by one or both parents.

2. Divorced or Separated Requirement: The parents must be divorced or separated under a written agreement at the end of the year or have lived apart during the last six months of the year.

3. Custody Requirement: The child must be in the custody of one or both parents for over half the year.

4. Written Declaration Requirement: custodial parent must agree and assign that right (via Tax Form 8332) to the non-custodial parent in the years s/he will be permitted to claim a dependent child in their tax filing.

Single filers with an AGI above $240,000 per year will not receive any benefit from the child tax credit. It is important to meet with a skilled family law attorney to discuss this evolving area of tax credits related to children. 

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