Since April 15th is approaching I thought it might be a good idea to address a common family law/tax question. The question is as follows: post-divorce which party is entitled to take the dependency exemption for the children, the person paying child support or the person receiving child support. People are frequently confused about this, in no small part because most divorce decrees are silent on the issue.
The Child Dependency Exemption is Governed by Federal Law
Let’s start with an analysis of the law. Internal Revenue Code Sec. 152(e) states that the custodial parent is entitled to the child dependency exemption. Obviously, this means that normally the noncustodial parent is not entitled to take exemption. The statute goes on to create an exception to this rule, permitting a noncustodial parent to take the exemption if the custodial parent signs a written declaration stating that he/she will not take the exemption. The noncustodial parent is supposed to attach a copy of this written declaration (see IRS form 8332) to their tax return.
Tax Court Finds that Strict Compliance with Statute is Required
An interesting article in BNA Bloomberg discusses the situation in detail and analyzes a 2012 Tax Court case on the issue. That case, Armstrong v. Comr., 139 T.C. No. 18 (2012), held that the requirements must be strictly followed in order to be entitled to the exemption. In that case the husband and wife had agreed in their divorce decree that husband would pay child support and he (even though he was the noncustodial parent) would also be entitled to take the child dependency exemption. The decree further ordered wife to annually execute the IRS form transferring this right to husband.
Husband later filed his tax return taking the exemption and attaching a copy of the Final Decree of Divorce to the return. For whatever reason, the IRS audited his return and decided that the Decree alone without the IRS form was insufficient to allow him to take the exemption.
My past impression has always been that as long as only one parent claims the exemption that there would not be an issue. Obviously, if both parties claim an exemption for the same child this is certainly going to raise a red flag with the IRS and I would expect both parties to receive an audit notice. I have to wonder if husband inadvertently caused additional scrutiny from the IRS by attaching the divorce decree to his return. I would imagine that the entry-level clerks who review tax filings would not know what to make of it, resulting in them passing it on to their supervisor and thus creating a certain amount of unwanted “special treatment” from the IRS.
Lesson: Make Sure You Get an Executed Form 8332
In any event, the court’s opinion makes it clear that in order to be entitled to the dependency exemption you must have the custodial parent execute the IRS form. If you find yourself in this situation and your ex refuses to execute the form this case makes it clear that your recourse is not through the IRS or the Tax Court, but rather through the Family Court that issued the order. In other words, you would need to file an enforcement action asking that the court order your ex to either execute the documents or face contempt.
Child support modification is addressed in Texas Family Code Section 156.401 through Section 156.409. Whether you are the payor who is seeking a reduction or the payee seeking an increase, the standard is the same. There are two possible avenues to seek a modification:
- Section 156.401(1) – allows the court to modify the child support if the circumstances have “materially and substantially changed” since the last order. This section gives very broad discretion to the trial judge in determining exactly what constitutes a “material and substantial” change in circumstances.
- Section 156.401(2) – essentially requires the court to recalculate the child support amount as long as it has been at least three years from the last order and the new child support amount would be at least 20% or $100 different than the current amount. This section gives very little discretion to the trial judge other than making a determination of the facts that are used in the calculation.
Essentially, someone seeking to modify child support would only use Section 156.401(1) if it had been less than three years since the previous order. Otherwise, the argument would be based on Section 156.401(2) and the case would be much more clear cut.
Typical reasons for child support modifications by payors include issues like a reduction in their income or having additional children. While there are other possible grounds, by far the most common reason a payee seeks a modification is that the payor now has a higher income than he/she did at the time of the last order.
Obviously, the analysis above is focused on the more common child support modification situations and does not attempt to address more complex situations. If you have any questions or comments about child support modification feel free to drop your comment below.
Image Credit: Photobucket
A Financial Information Statement is a court-required document for nearly all temporary orders hearings and final trials in Texas divorce cases. Here is a sample Financial Information Statement so you have an idea of what they look like. The names and details used are all fictional, although the facts used are relatively typical of the issues dealt with in a Texas divorce. The sample document is based on a husband who expects to move out of the residence and pay child support. In a real case both sides prepare and submit a Financial Information Statement to the court prior to a temporary orders hearing.
What is the Purpose of a Financial Information Statement in a Divorce?
Essentially this document shows to the court the gross and net income of each party as well as a list of the necessary expenses of the party preparing the Financial Information Statement. When I sit down with a client to prepare this document it is often the first time they have given much thought to what their resources are and what they will need post-separation. Obviously, the financial and cash flow issues in a divorce case are extremely important and need to be evaluated early on in the case.
The Financial Information Statement document is extremely important for helping the court (as well as your lawyer) evaluate the financial issues in the case. Assuming there are not large discrepancies between the numbers on each party’s Financial Information Statement, the decisions in a temporary orders hearing are largely decided by the evidence in each party’s Financial Information Statement.
What are the Pitfalls in Preparing Your Financial Information Statement?
In preparing the Financial Information Statement clients sometimes tend to underestimate their expenditures and give “low ball” expense numbers. Maybe this is because they are embarrassed and they give what they think the number should be, rather than what it actually is. It is important that you give accurate numbers in order to get the result you need. For example, if you typically spend $1000 per month for groceries based on your actual past history, then this is the number you should use for the Financial Information Statement. If instead you put $400 because that seems like a more reasonable number, you’re very likely to have financial trouble as the case progresses because you underestimated your actual expenses and don’t have enough coming in to cover everything. So try to be as accurate as possible in preparing your Financial Information Statement.
Of course the specifics of each individual case are unique and you should discuss with your attorney the preparation and use of the Financial Information Statement.
I sometimes get asked by a divorced mom whether she is required to let her ex-husband have his visitation with the children if he is not currently paying his child support. The reasoning behind the question is that if he is not following the court order, then why should I?
Two Separate Issues Under the Texas Family Code
The answer is that yes, you must follow the court order and allow the father to exercise his visitation regardless of whether he is in arrears on his child support. The court will view those issues are entirely separate and either party will be at risk of being held in contempt of court if they fail to follow the court’s order.
Let Him See the Children and File an Enforcement Action
The appropriate action for the mother to take in that situation is to hire an attorney to pursue an child support enforcement action against the father. The Texas Family Code has very strong enforcement remedies for failure to pay child support on time, including the very real possibility of jail time.
Since mom’s who are not receiving their child support are typically already strapped for cash, the idea of having to pay an upfront retainer to pursue dad in the enforcement action is usually not an attractive one. Fortunately the Texas Attorney General’s office has a child support division that handles enforcement cases for free. While the service may not be the same that you would get from a private law firm (as they are fond of saying “I don’t represent the party, I represent the State of Texas”), you can’t beat the price.
Please note that the clients and lawyers referenced in the video and transcript are purely hypothetical and not based on actual people. If you prefer reading to watching, please see the transcript below:
Selecting a lawyer who is going to effectively handle your divorce is extremely important, but most people have no idea how to pick the right lawyer for their case.
What you need is a divorce firm that specializes in divorce and that has a track record of satisfied and happy clients. A firm that focuses on what should be the main objective in every divorce case: getting the client a fair result as early in the process as possible.
Lets do a hypothetical comparison of two men who have decided to get divorced.
One, lets call him Bill, mentions to a co-worker that he and his wife have separated and that he’ll be getting divorced. His co-worker enthusiasticly tells him about his lawyer nephew who handles divorces. Bill, thinking his case will be simple and his spouse will agree, ends up hiring the nephew even though he is primarily criminal lawyer. Bill thinks to himself, ‘how hard can a divorce be, right?’ 12 months later, a frustrated Bill is still not close to being divorced.
Lets compare Bill’s situation to Steve’s. Steve had heard plenty of nightmare stories from his divorced friends and knew that he didn’t want to take any chances. He wanted an excellent divorce lawyer. Steve asked these same friends for recommendations, but none of them gave what you would describe as a “ringing endorsement” of their attorney.
So Steve went online looking for the right divorce lawyer for his case. He was looking for experience, a focus on family law, and a firm that had a track record of satisfied clients. When he found a firm that fit this description he scheduled an initial consultation to meet with the lawyer and see if his experience in person would match what he found online. When it did, he hired that firm. Even though his case involved children and some complex assets, four months later Steve was divorced and very satisfied with the result.
Why were these two outcomes so different? Let’s examine what happened.
Bill’s attorney, not having much experience in divorce cases, was never entirely sure how to proceed. He was frequently hesitant to push forward on the case because he was afraid that he might miss something. He spent a lot of time on issues that turned out to be not that important, while he neglected to focus on issues of extreme importance. He just never was confident that he was handling the case correctly, so he moved very slowly and indecisively.
In contrast, Steve’s attorney knew from experience exactly what needed to be done. He focused on the steps that needed to be taken to get a fair result for Steve as soon as possible. The steps required vary depending on the particulars of each case, but what is crucial here is that Steve’s attorney remained focused throughout the case on the primary overriding objective: get Steve a fair result as soon as possible.
These two men had very different experiences. One had a divorce case filled with frustration, delay, and unnecessary expense. The other experienced a smooth, efficient process handled by a true professional.
While divorce is always an emotionally difficult and painful situation, it shouldn’t be made more difficult by having an attorney who is not qualified or experienced enough to get you an excellent result in a reasonable amount of time.
If you’re interested in working with a divorce firm that knows exactly what it takes to get a fair result in the minimum time required, then feel free to call the Morgan Law Firm. We would be happy to schedule a consultation to discuss your situation in detail along with your options. Just fill out the form below and we will review it and get back to you to schedule a consultation. If you prefer, just call our office and you can schedule a consultation right away. We look forward to helping you in any way we can.
This video goes through the process of calculating child support in a typical Texas case. If you prefer, you can read the transcript below:
My name is Scott Morgan and I am a board certified Texas family law attorney. In this video I am going to walk through an example of a very simple child support calculation.
In Texas child support is calculated using a formula from the Texas Family Code. To calculate the child support amount you start with the payor’s monthly gross income. That amount is then reduced to allow for certain deductions, such as taxes and certain health insurance expenses. Once these deductions are made you have calculated the payor’s monthly “net resources.”
Note that this number is likely not the same as the payor’s actual take-home income. There are a lot of deductions that come out of someone’s paycheck, for example 401k contributions, that are not factored into the calculation of monthly net resources.
Once the monthly net resources are calculated, you multiply that amount by a percentage to arrive at the monthly child support amount. The percentage is determined by how many children there are, with a reduction in the percentage if the payor has other children he is legally responsible for.
As a simple example, lets take a payor who makes $96,000/year or $8,000/month. Assuming this payor is not self-employed (the net resources calculation is slightly different for the self-employed), we would look at the statutory deduction chart and see that the monthly net resource amount would be $5,920. If we further assume that the child support is for one child and the payor has no other children, then the statutory percentage would be 20%. We multiply the net resource amount ($5,920) by 20% to arrive at a monthly child support amount of $1,184.
This has been a very simple example and, as with everything in family law, there are certain exceptions that can apply, but this is how child support is calculated in the vast majority of cases in Texas.
I hope you found this video helpful. If you have any questions or suggestions for future videos please feel free to comment below.
This is a video by Scott Morgan, giving his three best tips on how to find the right divorce lawyer for your case. It originally appeared on his blog at austindivorcespecialist.com. If you would prefer, you can read the transcript below:
I’m Scott Morgan, founder of the Morgan Law Firm. I am a board certified Family Law attorney and I have practiced family law since 1994. In this video I am going to give you my three best tips for how to pick the right divorce lawyer for your case.
My first tip is to find out choose a lawyer who is experienced and focused on family law and divorce cases. Sometimes people hire attorneys for their divorce who have very little experience handling divorce cases, thinking that as long as the lawyer has trial experience of any kind that is enough. Nothing could be further from the truth. Family law is a very specialized area that is constantly changing. You really need someone whose focus is on family law.
Tip number two – find out what past clients have to say about the attorney. There is no substitute for getting actual feedback from someone who hired this same attorney and worked with him or her. If you were referred by someone you know who was a past client, all the better. Ask this person what it was like to be a client of that lawyer and, if they had it to do over again, would that hire the same lawyer and why or why not? This will give you the very closest thing to the actual experience of being this lawyer’s client before you decide who to hire.
Lastly, tip number three – After you meet with the lawyer for the first time ask yourself if you would be comfortable working with this attorney. No matter what the résumé says, no matter what the lawyer’s past clients say, if you just don’t feel comfortable with and confident in the attorney, you should keep looking.
Obviously, hiring the right divorce lawyer is a very important decision and one you want to get right the first time. Making the wrong decision and having to switch attorneys in the middle of a case is no fun. But if you follow these three simple tips you are much more likely to find the right attorney for your case.
If your case is in the Austin area feel free to give our office a call and schedule a consultation. We would be happy to see if we could assist you.