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This is one of most common tax questions that we receive when a married couple with children are in the process of getting divorced.   There are five different tax filing types;

 

Single

Married Filing Joint

Married Filing Separately

Head of Household

Qualifying widow(er) with dependent child

 

There are a number of advantages for the spouse that is able to use the Head of Household (“HOH”) filing status after the divorce is finalized.   They include:

 

  • Lower tax brackets
  • A higher standard deduction
  • The possibility of qualifying for more tax credits and deductions

 

Joint Custody

 

When parents are awarded joint custody, you would think that there is some flexibility as to who is allowed to file as HOH or at a minimum that the spouses can alternate who files as HOH each year.  In a divorce, even with a joint custody arrangement, there is typically one custodial parent. The custodial parent is the parent that the children spend the greatest number of days with during the year.

 

It literally comes down to counting the number of days during the calendar year that the children spends with each parent.  The parent that spends the most days with the children during the year is the custodial parent and has the right to file as Head of Household, to claim the children as a dependent, claim the child tax credits, and the dependent child care credit.

 

Form 8332

 

At any time after the divorce, the custodial parent has the ability to file Form 8332 with their tax return which allows the noncustodial parent to claim one or any number of the children as a dependent on their own tax return.  However, even if the custodial party files Form 8332 with their return allowing their ex-spouse to claim one or more of the children as dependents for that tax year, they still retain the right to file under the Head of Household filing status.  The Head of Household filing status cannot be transferred to the noncustodial parent via Form 8332.

 

Both Parents Claim HOH

 

There are a few rare cases where it could be possible for both parents to file as Head of Household in the same tax year.  For example, if there are two children, one child spends 51% of the year with one parent, and the second child spends 51% of the year with the other parent, both parents may be able to file as Head of Household in the same tax year.   If you feel like you and your ex-spouse qualify for this exception, you will need to keep very careful records of where the children spend their days and nights throughout the year.

You should keep a “child custody log” because there is a good chance that both parents filing as HOH post-divorce will trigger an audit by the IRS.   But there is nothing guaranteeing that a child custody log by itself will satisfy the IRS in the event of an audit. The IRS could request additional information to determine that the 51% time requirement was met by each parent.

 

Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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Investment advisory services offered through Greenbush Financial Group, LLC. Greenbush Financial Group, LLC is a Registered Investment Advisor. Securities offered through American Portfolio Financial Services, Inc (APFS). Member FINRA/SIPC. Greenbush Financial Group, LLC is not affiliated with APFS. APFS is not affiliated with any other named business entity. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.