“Mommy and Daddy can’t get along anymore, so we’re going to get a divorce, but we still love you.” Anonymous
Famous last words! Now the Divorce is over and the divorced parents have to deal with each other on working out who may use the tax deductions on the child’s expenses. This is a very serious tax matter for both parents since if done incorrectly; both parties could be audited, with fines, penalties and much ill feeling. Working together on applying for deductions correctly is a good start on joint parenting of your child. You may have both made the decision not to be together, but you should continue after a divorce to make decisions on your child and his/her well-being.
Dependent Exception for Children
A qualifying child for purposes of the child tax credit:
1. Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them
2. Under age of 17 at the end of 2011,
3. Did you provide over half of his or her own support for 2011,
4. Did they live with you for more than half of 2011 and are you “the custodial parent”.
5. Did you claim them as dependent on your return?
6. Did you not file a joint return for the year and
7. Are you a U.S. citizen, a U.S. national, or a U.S. resident alien?
The custodial parent is entitled to take this exemption for their child since the child has lived over 50% of the time with this parent and also provides over 50% of the child’s support.
Then noncustodial parent may be able to take the deduction in specific cases (Non-Custodial Parent Rule):
1. A Custodial parent signs a written IRS declaration giving the noncustodial parent the right to claim the designated child as a dependent for the year.
2. If combined, both parents provide more than half of the child’s support
3. The parents are divorced or separated under a written agreement at the end of the year or have lived apart during the last six months of the year.
4. The child lives with the noncustodial parent more than half the year.
When a parent has equal joint physical custody of the child, it is problematic as to which parent is entitled to the exemption. To avoid the unnecessary expense of confronting this issue both parents should try to come to an agreement as to who will use the child exemption for the year and have the other parent sign an IRS declaration as to the exemption. Always keep a date and time log of when the child is in residence with you during the year and the expenses incurred on their behalf. This log may be very important in resolving many problems by establishing possession times of your child and can be strong evidence in a court of law.
When these requirements are met, the noncustodial parent is eligible for tax breaks with the designated child.
Dependency Exemption Deduction: $3,700 for 2011 and $3,800 for 2012.
Child Tax Credit: This credit is worth up to $1,000 for each eligible child.
Higher Education Tax Credits: American Opportunity can be worth up to $2,5000 during first four years of child’s college education. The Lifetime Learning credit can be worth up to $2,000 and covers usually any higher education tuition costs.
Student Loan Interest Deduction: A deduction up to $2,500 on qualified student loan interest paid by the parent.
Tuition Deduction: The deduction is up to $4,000 for higher education tuition and mandatory enrollment fees.
The noncustodial parent can usually claim the tax breaks below as long as the support and the custody requirements of the noncustodial parent rule are met. The custodial parent can also usually claim these breaks.
1. Itemized deductions for the child’s medical expenses paid by parent.
2. Tax free employer provided healthcare benefits for the child
3. Tax free heath savings account (HAS) distributions to cover the child’s medical expenses
Only A Custodial Parent Is Allowed Tax Breaks:
Head of Household (HOH) Filing: This filing is better than filing as a single taxpayer since the standard deduction is larger and tax brackets are looser.
Tax Free Childcare Assistance: Under an employer plan up to $5,000 in federal income tax free reimbursement for child care expenses.
Earned Income Tax Credit: In 2012, this credit is worth up to $3,169 for one child and up to $5,891 FOR THREE OR MORE CHILDREN. As a parent’s income goes up, the credit is phased out.
Child Care Tax Credit: This credit of between $600 to $1500 for one child, and $1,200 to $2,100 for two or more children, based on a parent’s income.
Under Texas legislation the courts have a right to temporarily amend certain existing orders concerning a parent who is ordered to military deployment, military mobilization or temporary military duty. This legislation was set into Texas law, beginning September 1, 2009.
If a conservator is ordered to military deployment, military mobilization, or temporary military duty that involves moving a substantial distance from the conservator’s residence so as to materially affect the conservator’s ability to exercise the conservator’s rights and duties in relation to his or her child, either conservator may file for an order under subchapter (a) of Section 153.702 of the Texas Family Code.
The Court may then render a temporary order in a proceeding under this subchapter regarding:
1. possession of or access to the child; or
2. child support.
A temporary order of the court under this subchapter may grant rights to and impose duties on a designated person (with certain limitations) regarding the child, except the court may not require the designated person to pay child support.
After a conservator’s military deployment, military mobilization, or temporary military duty is concluded, and the conservator returns to the conservator’s usual residence, the temporary orders under this section terminate and the rights of all affected parties are governed by the terms of any court order that was applicable before the conservator was not ordered to military deployment, military mobilization, or temporary military duty.
Further, if the conservator with the exclusive right to designate the primary residence of the child is ordered to military deployment, military mobilization, or temporary military duty, the court may order appointment of a designated person to exercise the exclusive right to designate the primary residence of the child during the military deployment, military mobilization, or temporary military duty in the following order of preference:
1. the conservator who does not have the exclusive right to designate the primary residence of the child;
2. if appointing the conservator described by Subdivision (1) is not in the child’s best interest, a designated person chosen by the conservator with the exclusive right to designate the primary residence of the child; or
3. if appointing the conservator described by Subdivision (1) or the person chosen under Subdivision (2) is not in the child’s best interest, another person chosen by the court.
A designated person named in a temporary order rendered under this section has the rights and duties of a nonparent appointed as sole managing conservator under Section 153.371 of the Texas Family Code.
The court may limit or expand the rights of a nonparent named as a designated person in a temporary order rendered under this section as appropriate for the best interest of the child.
If the court appoints the conservator without the exclusive right to designate the primary residence of the child, the court may award visitation with the child to a designated person chosen by the conservator with the exclusive right to designate the primary residence of the child.
1. The periods of visitation shall be the same as the visitation to which the conservator without the exclusive right to designate the primary residence of the child was entitled under the court order in effect immediately before the date the temporary order.
2. The temporary order for visitation must provide that
a. the designated person under this section has the right to possession of the child for the periods and in the manner in which the conservator without the exclusive right to designate the primary residence of the child is entitled under the court order in effect immediately before the date of temporary order.
b. The child’s other conservator and the designated person under this section are subject to the requirements of Section 153.316(a) with the designated person considered for purposes of that section to be the possessory conservator;
c. The designated person under this section has the rights and duties of a nonparent possessory conservator under Section 153.376(a) during the period that the person has possession of the child; and
d. The designated person under this section is subject to any provision in a court order restricting or prohibiting access to the child by any specified individual.
3. The court may limit or expand the rights of a nonparent designated person named in a temporary order under this section as appropriate for the best interest of the child.
If the parent without exclusive right to designate the primary residence of the child is ordered to military deployment, military mobilization, or temporary military duty, the court may award visitation with the child to a designated person chosen by such conservator if the visitation is in the best interest of the child. The temporary order for visitation must provide that:
1. the designated person under this section has the right to possession of the child for the periods and in the manner in which the conservator described by Subsection (a) would be entitled if not ordered to military deployment, military mobilization, or temporary military duty;
2. the child’s other conservator and the designated person under this section are subject to the requirements of Section 153.316, with the designated person considered for purposes of that section to be the possessory conservator;
3. the designated person under this section has the rights and duties of a nonparent possessory conservator under Section 153.376(a) during the period that the designated person has possession of the child; and
4. the designated person under this section is subject to any provision in a court order restricting or prohibiting access to the child by any specified individual. The court may limit or expand the rights of a nonparent designated person named in a temporary order under this section as appropriate and as is in the best interest of the child.
In today’s unpredictable economy there has been a continuing growth of small businesses and a substantial decrease of existing established businesses in Texas. In the regrettable instance of “Divorce” how may the “Family Business” be divided between a dissolving couple to reach a fair and reasonable result for both parties?
In such a situation, an experienced Family Law Attorney with the aid of economic experts becomes critical in establishing a fair and equitable price on the business, consulting the client on their rights relative to the business, helping with negotiations for a business entity to be sold, transferred, or appraised, and making sure the client’s rights are protected in the transaction.
The most important fact to establish is a credible determination of the true fair market value of a business and how the business or the business assets are to be divided between the spouses in the divorce.
The dividable interest is determined by the fair market value of the business. This value is the price a willing buyer would pay and a willing seller would give in a purchase with both buyer and seller having reasonable knowledge of the relevant facts of the business and neither being under pressure to buy or sell the business.
During a Divorce, the concept of a credible hypothetical buyer and seller may be determative and very complicated. Going through a divorce is difficult enough, but fairly determining the true value of the business in the process can be complicated and sometimes expensive. There are always two different ideas in every divorce and the family business will bring out the some very serious opinions of just what is the “fair market value”! Ideas may range from too high in today’s economy to too low base on emotional attachments, complicated further by feelings as to possible other family members who own or claim parts of the business. The value placed on proposed purchases that are not part of an arm’s length transaction may not be relevant to the correct fair market value.
To help determine the fair market value and complete the transaction fairly for both parties the family law attorney must be able to obtain and review all business and financial records, financial statements and tax returns, and any other pertinent information for the preceding 5-7 years. Often an independent business appraiser or CPA will be retained to help in determining a credible and correct valuation of the business that a Judge or Jury will respect.
Texas House Bill 901 changing the spousal maintenance law in the Texas Family Code became effective for divorce cases filed on or after September 1, 2011. The bill revises the conditions that establish eligibility for spousal maintenance, commonly referred to as alimony, and changes the factors required to be considered by a court in determining the nature, amount, duration, and manner of periodic payments for a spouse who is eligible to receive maintenance.
Eligibility for spousal maintenance requires that the spouse seeking maintenance lack sufficient property to provide for the spouse’s minimum reasonable needs.
The new law provides potentially increased relief to spouses who have been out of the work force, are disabled, are victims of family violence or are the primary custodians of a disabled child.
Major changes to the Texas spousal support law are:
1. The maximum amount of spousal support that courts may award increased from $2,500 to $5,000.00 per month, although still limited to 20 percent of the payer’s average gross monthly income.
2. The duration of spousal support extended from a maximum of 3 years to a maximum of 5, 7 or 10 years, generally depending on the length of the marriage.
3. The law clarified that if a person has primary care for a disabled child, the custodial parent may be prevented because of the child’s disability from earning sufficient income to meet the custodial parent’s minimum reasonable needs.
4. The law also clarified that a person may not be held in contempt for failing to pay spousal support which is in an agreed order and extends beyond the period of time provided under the law.
In order to receive “maintenance,” (which is the statutory term for spousal support), the spouse seeking support must lack sufficient property to provide for the spouse’s “minimum reasonable needs”, AND one of the following:
(1) The recipient must be unable to earn sufficient income to provide for his or her minimum reasonable needs because of an incapacitating mental or physical disability;
(2) The marriage lasted for 10 years or longer and the recipient lacks the ability to earn sufficient income to provide for his or her minimum reasonable needs;
(3) The recipient is the custodian of a child of the marriage of any age who requires substantial care and personal supervision because of a physical or mental disability that prevents the spouse from earning sufficient income to provide for the spouse’s minimum reasonable needs; OR
(4) The person ordered to pay support was convicted of or received deferred jurisdiction for an act of family violence during the pendency of the suit or within two years of the date the suit is filed.
Under the previous law, under most circumstances, the court could only order maintenance for a maximum of three years, regardless of the length of the marriage. Under the new law, the court can order maintenance to continue for:
(1) 5 years if the parties were married less than 10 years and the maintenance is awarded due to family violence;
(2) 5 years if the parties were married more than 10 years, but less than 20 years.
(3) 7 years if the parties were married more than 20 years, but less than 30 years;
(4) 10 years if the parties were married for more than 30 years.
In cases where the maintenance is awarded due to the mental or physical disability of the spouse or a child of the marriage, the court may order that the maintenance continue as long as the disability continues.
However, in all circumstances, the law provides that the Court shall order maintenance for the shortest reasonable period that allows the recipient to earn sufficient income to meet his or her reasonable needs.
If you are contemplating dissolving your marriage and have questions concerning your financial future, seek competent legal counsel to help you determine whether you could be eligible for spousal support under the expanded provisions of the new law.
How Can The Uniform Interstate Family Support Act (UIFSA) Affect Your Family Interstate Jurisdiction Problems?
Are you a parent having trouble collecting your child support for the children because your EX-spouse lives in another state? This has been a problem for many families for a long time. The United States Congress recognized this problem and mandated all states to adopt the Uniform Interstate Family Support Act (UIFSA) to facilitate collection of child support across state lines.
It is no surprise that people move, but when trying to collect child support from an out-of-state parent you may need legal help to avoid unpleasant surprises.
When more than one state is involved in establishing, enforcing or modifying a child or spousal support order, the UIFSA determines the jurisdiction and power of the courts in the different states. The Act also establishes which state’s law will be applied, an important factor as support laws vary greatly among the states.
If there is no current child support order and the child and one parent live in Texas, the order or paternity determination may be established without another state’s involvement. If the parents have sufficient contact with Texas, the court may be able to enter an order even if one parent does not currently live in the state. UIFSA enables Texas and another state to cooperate to establish a child support order if another state’s assistance is needed because of residency issues.
UIFSA permits only one active support order for a case at a time. When there are multiple orders, UIFSA determines which support order will be followed, known as the “controlling order.” Orders may be registered in a different state for enforcement and modification purposes. The initiating state sends the order and documents to the responding state. The responding state registers the order and sends a notice to the other parent. The other parent has 20 days to file written objections regarding the order. If objections are made prior to the deadline, the court will hold a hearing and decide whether the order should be registered.
UIFSA also allows parents to enforce their support orders without the assistance of the state where the obligor (paying parent) lives. A withholding order, in many cases, can be sent directly to the out-of-state obligor’s employer requiring child support be deducted from the parent’s wages. The responding state also has the authority to pursue collection through enforcement hearings, license suspension, or incarceration of the delinquent, non-custodial parent.
If financial or other circumstances have changed, you may also request the court to modify a child support order. UIFSA sets the rules for modification. If either of the parents or the child still lives in the state that issued the controlling order, changes in the support amount must occur there. Otherwise the order may be registered and modified in the child’s home state. The child’s home state is generally where the child has resided for six (6) months with a parent.
If all parties have left the state that issued the controlling order, that state cannot change the support amount. To modify support, the order must be registered for modification in the state of residence of the parent not seeking modification.
UIFSA allows both parents to agree in writing that the state where one parent resides may modify the order and take control of the case. When a state modifies another state’s order, the new support amount is the amount to be collected by all any state in which the obligor resides.
Parents often turn to the Texas Attorney General for assistance in the collection and enforcement of child support, and that can be a good choice. However, parents – especially those who are experiencing continued delays and roadblocks – can hire a private attorney to advocate on their behalf and for the benefit of their children. An attorney can also provide guidance in enforcing and modifying terms of visitation.