By Jeff Town and Marc Patoile
One issue that often arises in Colorado divorce involving children is the question of how to allocate the right to claim dependent children for income tax purposes.
Allocation of the dependency exemption also arises in paternity cases or in allocation of parental responsibilities. In short, in any legal proceeding involving children in Colorado divorces, the parties should consider the allocation of the dependency exemption as a potential issue and this is an important issue that can have a lasting impact until the children are no longer eligible to be claimed, often through college or even longer. An experienced Colorado family law attorney can help navigate through the maze, often with the input of your tax advisor who can assist you in determining the exact amount of your tax savings by having the exemption, or not, and other related questions such as head of household designations and dependent care credits.
Our family law attorneys work with families throughout the Denver area to help clients reach agreements or have courts decide these issues, together with a designation of a primary residential custodian. The requirement for the residential custodian designation was eliminated under more modern changes in family laws, but still exists in various other state and federal statutes, so it remains an important issue to address in child custody cases.
As of the writing of this article, IRS Tax Tip 2013-09 reads:
- Exemptions reduce taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. You can deduct $3,800 for each exemption you claim on your 2012 tax return.
- Personal exemptions. You usually may claim one exemption for yourself on your tax return. You also can claim one for your spouse if you are married and file a joint return. If you and your spouse file separate returns, you may claim the exemption for your spouse only if he or she had no gross income, is not filing a joint return and was not the dependent of another taxpayer.
- Exemptions for dependents. Generally, you can claim an exemption for each of your dependents. A dependent is either your qualifying child or qualifying relative. If you are married, you may not claim your spouse as your dependent. You must list the Social Security Number of each dependent you claim on your return. See Publication 501, Exemptions, Standard Deduction, and Filing Information, for information about dependents who do not have Social Security numbers.
Divorcing couples or those parents who are involved a Colorado child custody case often ignore or gloss over this important issue, but it is an issue that can have significant financial ramifications for many years following the dissolution of their marriage.
The Colorado child support statute, Colorado Revised Statutes Section 14-10-115, is the provision where the Colorado law concerning the parents’ allocation of the dependency exemption for tax purposes can be found. Colorado Revised Statutes Section 14-10-115(12) states:
Unless otherwise agreed upon by the parties, the court shall allocate the right to claim dependent children for income tax purposes between the parties. These rights shall be allocated between the parties in proportion to their contributions to the costs of raising the children. A parent shall not be entitled to claim a child as a dependent if he or she has not paid all court-ordered child support for that tax year or if claiming the child as a dependent would not result in any tax benefit.
The phrase “shall be allocated between the parties in proportion to their contribution to the costs of raising the children” is not otherwise defined under the statute. Our seasoned Douglas County family law attorneys can clarify this phrase and how it is interpreted by Colorado divorce judges and other Denver family law attorneys. The experienced family law attorneys at Folkestad Fazekas Barrick & Patoile, P.C., strategically based in Douglas County serving the entire Colorado Springs to Boulder County corridor can help you today.
