One issue that comes up over and over again in divorce and paternity cases is how to handle the tax exemptions. With the potential value that each child can bring to a parent's income tax return, it is no reason why many people ask about how to share the tax credit (or not if you are the custodial parent).
How much is the exemption worth? It depends on your particular income situation, but looking at some basics you can estimate that there is some real value here. For instance, the each exemption you get to list on your tax return is a $3,800 deduction (in 2012). Then factor in $1,000 tax credit per child and you can see how valuable claiming a child can be.
How do courts determine who gets the credit ad exemption? For starters, it is possible that an agreement can be reached in a situation where you are negotiating a divorce agreement or trying to resolve a child support matter through alternative dispute resolution.
Many times it is not uncommon for parties to agree to split the deductions. If there is an even number of children, most agreements usually have the parties divide the exemptions equally. For example if there are two children, you may have a situation where each parent gets to claim a child. If it is a situation where there is an odd number of children, then typically the deduction will be alternated between the parents.
What happens if we can't agree on who should get the deduction? Indiana law provides several factors that courts must examine in making a decision as to how to equitably handle the income tax exemption. Specifically, Indiana Code 31-16-6-1.5 spells out that a Court has to consider the income of each parent and how the tax rate of each parent will be impacted by the deduction. Other factors include the age of the child and the cost that each parent pays in supporting the child.
For instance, if you have a situation where one parent is not working and the other parent is working, then it is clear that the exemption would be more useful to the working parent. This would also show up in the child support worksheet as the parent with the greater income would likely be paying a greater share of the expenses for the child as well.
If you have questions about how tax deductions would work in your individual family law case, you should consult with a family law attorney to discuss how you could modify your order to include an income tax exemption.
Jeffery M Haupt is a solo-practice attorney in South Bend, Indiana. He limits his practice to criminal defense, including driving offenses, DUI, OWI, and license suspension matters and family law matters. If you are a Northern Indiana resident and would like to know more about how he can help assist you with your legal matters, please visit my website, www.lawjmh.com, to find out more.
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