Can Wife Claim Children She is Not Supporting

[PA_Scot]

I am a Pennsylvania resident. I was separated from my wife in 2022, with divorce to take place in February 26; we agreed to delay the divorce to allow her to remain on my health insurance. Until the divorce is finalized, we have agreed to file jointly. We have a PSA, which stipulates that after the divorce, we will take turns claiming the 3 children, alternating 2-1 each year. We have no formal custody agreement. The PSA simply says 50% custody. We wanted to allow flexibility in the custody schedule.

Initially, when we separated, the children lived primarily with their mother. Since then, it has turned out that they have all decided to live with me, with only one of my sons visiting her on the weekends. This is something that I did not envision at the time of the agreement. My concern is, that once we are divorced she will be claiming the children which she is not supporting on her taxes, while the children are living with me, at my expense.

Is it legal for her to claim children on her tax return, who do not reside with her and for whom she does not provide financial support solely based on PSA language below:

"G(3) INCOME TAX RETURNS The parties acknowledge that the parties shall file their Federal, State and Local income taxes jointly until the Divorce Decree has been entered by the Court. After that time, the parties agree and acknowledge to file separate tax returns.

Once a divorce decree is entered, the parties agree to file individual tax returns and will alternate claiming dependent children’s credits by the following: Year 1 - Husband will claim 2 dependent children and Wife will claim 1 dependent child. Year 2 – Husband will claim 1 dependent child and Wife will claim 2 dependent children. This will continue until the parties can no longer claim the children as dependents."

 

[LdiJ]

I am a Pennsylvania resident. I was separated from my wife in 2022, with divorce to take place in February 26; we agreed to delay the divorce to allow her to remain on my health insurance. Until the divorce is finalized, we have agreed to file jointly. We have a PSA, which stipulates that after the divorce, we will take turns claiming the 3 children, alternating 2-1 each year. We have no formal custody agreement. The PSA simply says 50% custody. We wanted to allow flexibility in the custody schedule.

Initially, when we separated, the children lived primarily with their mother. Since then, it has turned out that they have all decided to live with me, with only one of my sons visiting her on the weekends. This is something that I did not envision at the time of the agreement. My concern is, that once we are divorced she will be claiming the children which she is not supporting on her taxes, while the children are living with me, at my expense.

Is it legal for her to claim children on her tax return, who do not reside with her and for whom she does not provide financial support solely based on PSA language below:

"G(3) INCOME TAX RETURNS The parties acknowledge that the parties shall file their Federal, State and Local income taxes jointly until the Divorce Decree has been entered by the Court. After that time, the parties agree and acknowledge to file separate tax returns.

Once a divorce decree is entered, the parties agree to file individual tax returns and will alternate claiming dependent children’s credits by the following: Year 1 - Husband will claim 2 dependent children and Wife will claim 1 dependent child. Year 2 – Husband will claim 1 dependent child and Wife will claim 2 dependent children. This will continue until the parties can no longer claim the children as dependents."

The IRS would side with you since the children do not live with her. However, the state court will not side with you because you have a PSA that says otherwise. So, even though the IRS would side with you the state court could still penalize you for not honoring the PSA. If you feel that it is no longer just for her to claim the children then try to get things changed in court, one way or another, to make it just.

 

[zddoodah]

You need an attorney to review your entire agreement and advise you.

 

[LdiJ]

You need an attorney to review your entire agreement and advise you.

Well, an attorney plus an accountant if the attorney is not well versed in tax law. Most family law attorneys are not.

 

[PA_Scot]

Well thank you for your replies.

My initial hope was that the agreement would be insufficient cause to claim the dependents. That the tax code would have some criteria to be met in order to claim someone as a dependent. And that without providing material or financial support, she would be committing tax fraud.

Since that is not the case, legal expense will probably exceed tax savings. So, I'll just eat it.

 

[zddoodah]

Well thank you for your replies.

My initial hope was that the agreement would be insufficient cause to claim the dependents. That the tax code would have some criteria to be met in order to claim someone as a dependent. And that without providing material or financial support, she would be committing tax fraud.

Since that is not the case, legal expense will probably exceed tax savings. So, I'll just eat it.

As LdiJ alluded to, the right to claim the kids as dependents rests with the parents with whom they primarily reside. That's you. If both of you were to submit returns claiming the same kids, there would be an inquiry that would be resolved in your favor (based on what you have told us). That being said, the IRS doesn't care who claims the kids as long as it's only one person, and the IRS regs allow the parents to do whatever they want (except that you cannot, for example, split a single kid 50/50).

However, as LdiJ also alluded to, and which was the point of my prior response, you appear to have signed an agreement by which you agreed to do something different than the default rule. That being the case, you need to have an attorney review your agreement to determine whether it's enforceable under state law or whether the changed circumstances from the time you signed it allow you to seek something different when it comes time to filing for divorce.

Also, it's not inconceivable that the agreement to delay the divorce filing might not be enforceable, in which case it might be to your advantage to do it now and seek both custody orders and an order regarding the dependent claims that are different from what's in your agreement. In that regard, I note that you referred to the agreement as a "PSA," which typically means "property settlement agreement," but it also sounds like you included stuff in the agreement that has nothing to do with property division.

You're going to hire a lawyer anyway for the divorce, right?

 

[quincy]

Well thank you for your replies.

My initial hope was that the agreement would be insufficient cause to claim the dependents. That the tax code would have some criteria to be met in order to claim someone as a dependent. And that without providing material or financial support, she would be committing tax fraud.

Since that is not the case, legal expense will probably exceed tax savings. So, I'll just eat it.

Will neither of you be paying child support?

 

[LdiJ]

As LdiJ alluded to, the right to claim the kids as dependents rests with the parents with whom they primarily reside. That's you. If both of you were to submit returns claiming the same kids, there would be an inquiry that would be resolved in your favor (based on what you have told us). That being said, the IRS doesn't care who claims the kids as long as it's only one person, and the IRS regs allow the parents to do whatever they want (except that you cannot, for example, split a single kid 50/50).

It is a bit more complicated than the bolded. What the IRS allows is the custodial parent to release certain, select parts of the tax attributes for children to the other parent. Some attributes cannot be released to the other parent at all.

Child Tax Credit: Defaults to the custodial parent (under the IRS's definition of custodial parent) but can be released to the other parent.
Additional Child Tax Credit: Defaults to the custodial parent but can be released to the other parent.
Earned Income Tax Credit : Can only be claimed by the custodial parent.
Head of Household: Can only be claimed by the custodial parent.
Child Care Credit: Can only be claimed by the custodial parent.
Education Credit: Defaults to the custodial parent but can be released to the other parent.

It's also a per child thing. It is feasible that one parent could be head of household due to one child, but not due to another child, for example. It is the same with other attributes. Some select attributes can be split between parents. For example, the custodial parent could claim Head of Household, Earned Income Credit and Child Care credits for a specific child, while the other parent claims the Child Tax Credit and the Additional Child Tax Credit for that same child.

The custodial parent is supposed to release form 8332 to the other parent to allow the attributes to be taken by the other parent. However, if the custodial parent does not do so once there are agreements or court orders in place that is where they can be penalized by the state court judge.

So, the mom in this case could claim the Child Tax Credit and the Additional Child Tax Credit based on the agreements that are in force, but could not claim the other tax attributes, no matter what they have agreed. Dad could claim head of household, earned income credit and child care credits for the same child that mom claims. However, if dad's income is out of Earned Income Credit range, and dad is already claiming another child for head of household purposes, and there is no child care credits involved, then it could be a moot point.

 

[PA_Scot]

I hired an attorney to draft the PSA. The PSA addressed both alimony and child support. My understanding is that I will simply enter an affidavit of consent and the court will issue the divorce decree. When February 26 gets here my attorney will be doing that for me. I don't think the ex-wife would resist the divorce, because our agreement

"A(2) AGREEMENT NOT A BAR TO DIVORCE PROCEEDINGS
The parties agree they shall secure a no-fault divorce pursuant to the provisions of Section 3301(c) of the Pennsylvania Divorce Code of 1980, as amended. It is the intention of the parties to not file Affidavits of Consent or Waivers of Notice prior to 2026. Therefore, the parties agree to remain legally married throughout 2023, 2024 and 2025. This divorce matter shall not be finalized prior to the year 2026.

The parties further agree that they shall execute and file their Waivers of Notice of Intention to Request a Final Decree in Divorce so that the Praecipe to Transmit the Record, incorporating this Agreement therein, in order to obtain a final divorce decree, may be filed on or before three (3) years from date of execution of this agreement. It is agreed that both parties’ Waivers of Notice of Intention shall be signed simultaneously with their Affidavits of Consent.

The terms of this Agreement shall be incorporated into the parties’ divorce decree but they shall not be merged into such decree. The Court of Common Pleas which may enter such divorce decree shall retain continuing jurisdiction over the parties and the subject matter of the Agreement for the purpose of enforcement of any of the provisions thereof. The parties agree and intend that said incorporation shall not vest in the court the power to modify the terms of this Agreement.

A(4) EFFECT OF DIVORCE DECREE
This Agreement shall continue in full force and effect after such time as a final decree in divorce may be entered with respect to the parties. "

 

[PA_Scot]

Will neither of you be paying child support?

Yes, I pay her child support to her, as stipulated in the PSA. She permits the children to stay with me provided I do not challenge the support

 

[quincy]

Thanks for answering my question.

https://www.irs.gov/faqs/filing-requirements-status-dependents/dependents/dependents-3

https://www.pa.gov/agencies/revenue...come-tax/child-and-dependent-care-credit.html

The links are to support/expand on what “LdiJ” (a tax professional) has said.

 

[PA_Scot]

Thank you, those links are great