Divorce will change many aspects of your life, including your financial situation. Some of the decisions you make in your divorce will even impact how much you pay in taxes each year.
You and your ex will have to create a comprehensive parenting plan when you divorce that divides your parental rights and allocates different parental responsibilities to each of you. Most parents worry primarily about securing adequate parenting time or keeping child support payments low enough to be reasonable. They may not worry about the other details of their custody arrangements, some of which could have financial implications.
If you don’t pay close attention to your custody paperwork, there’s a possibility that you could make a big mistake when filing your individual tax return. This mistake could lead to you facing tax fraud allegations.
The courts decide who can claim the children as dependents
Many of the biggest tax deductions and credits relate to your status as a parent. However, both parents cannot claim the same child on their tax returns each year.
Typically, your divorce decree will state which parent has the right to claim the child for tax purposes. In some cases, each parent may claim some of the children in the family, or the parents may alternate years. Other times, the parent with more parenting responsibilities will usually be the one who gets to claim the children for tax purposes.
Not only might you underpay your taxes due to claiming your children when you shouldn’t, but you could also potentially wrongfully receive stimulus payments that you may later have to repay. Understanding how divorce affects your tax return could help you avoid accidentally committing tax fraud after your divorce.