Can The Child Tax Exemption be Claimed by the Non-Custodial Parent in New Jersey

Custodial parent’s in New Jersey are often surprised to find out that even if they are deemed the custodial parent by a family court they are not automatically entitled to claim their children as tax exemptions each year. The New Jersey courts treat the issue of custody and who can claim the children as tax exemptions as separate but related issues. The leading case which discusses allocation of child tax exemptions in New Jersey is Gwodz v. Gwodz, 234 N.J. Super. 56 (1989).

In the Gwodz  case the husband and wife had a property settlement agreement which resolved their divorce without a trial. The parties agreed that wife would have custody of their two children. However, for whatever reason, their written settlement agreement made no mention of who would be able to claim the children as tax exemptions each year.

A few years after their divorce the husband filed a motion seeking, among other relief, that he be permitted to claim both children as tax exemptions. The court issued an order which allowed each party to claim one child as a tax exemption each year. The wife appealed the judge’s decision to the appellate division.

The Appellate Division found that the family court judge had the authority to allocate the federal tax exemption between the parents. The court reasoned that the allocation of the tax exemption between the parents can have the effect of altering the net income available for child support. The court further ruled that although judges have the authority to allocate the exemption between the parents they must consider or quantify the effect of the allocation upon each party’s income in making their decision.

The takeaway from the Gwodz case is that a New Jersey Family Part judge has the power to allocate the federal child tax exemption between parents. The other takeaway from the Gwodz case is that the judge can’t just say “I’m splitting the tax exemptions” , or “wife/husband gets both exemptions”. If the issue is brought before a judge, evidence has to be presented as to the parties incomes, the amount of child support, and the effect of claiming the exemption on each parent’s income, and the resulting amount of their child support obligation. Preparing and presenting this evidence is not a simple or inexpensive process. As a practical matter, this is why oftentimes, the parties agree to split the tax exemptions. The extra cost in lawyer time and client money of preparing for and presenting evidence on the effect of the tax exemption on each parties income available for child support is too great, and the outcome (which way the judge will rule) is too uncertain for most parents to pursue a judicial review of the issue. Nonetheless, if the parents are willing to pay the monies for a judicial review it is available.

IRS Form 8332

In order for the child tax exemption to be “released”, i.e., transferred from the custodial parent to the non-custodial parent IRS Form 8332 must be completed by the custodial parent. It should be noted that the release also allows the noncustodial parent to claim the child tax credit and the additional child tax credit. However, signing and releasing the child tax exemption does not disqualify the custodial parent from claiming the childcare and dependent care credit.

If you have questions regarding allocation of the child tax exemptions, or any other family law-related questions do not hesitate to contact me to discuss your situation. I have been representing clients in New Jersey family law matters for over 20 years. My principal counties of practice are in Northern New Jersey- Bergen, Passaic, Hudson, Essex and Union counties. I can be reached at 201-731-3086 (toll-free at 844-431-3380), or using the contact form. The consultation for potential clients is free of charge.