Custody and Exemptions
If the parents have not agreed otherwise in a divorce settlement, only the custodial parent may claim an exemption for a child. The federal tax code allows only one parent to claim a child on her tax returns, including the dependency exemption, dependent care credit, and any tax credits. Generally, a child is only considered a dependent if she lives with the taxpayer for more than half the year. As a result, the parent who has custody of the child is usually the person who may claim the child as a dependent. When the parents share joint custody, the parent with whom the child spends the greater number of nights is considered the custodial parent. If the number of nights spent with each parent is equal, the parent with the higher income will be considered the custodial parent for tax purposes.
When settling a divorce case, the custodial parent has the right to waive her right to the exemption for the child. However, state courts may not order a custodial parent to give up the exemption, as this is in violation of federal tax law. The custodial parent must voluntarily do so in a marital settlement agreement, often in exchange for a more favorable property distribution or alimony payments.
Revoking a Waiver
Because a marital settlement agreement may be considered a legal contract, revoking the waiver may be deemed a breach of that agreement. If you revoke the exemption provision and refuse to release it back to the other parent as provided for in the divorce decree, your ex-spouse could take you back to court to enforce the decree. Although a state court does not have the right to impose a waiver of the exemption on the custodial parent, the court may enforce a divorce settlement agreement.
Effect of Breach
If your ex-spouse brings you to court for breaching the divorce decree and is successful, you may be responsible for compensating your ex-spouse for his financial loss. The court may require you to pay for the damage caused by revoking the exemption, which is generally the increased tax liability. In other words, the court may order that you pay the amount that your ex-spouse would have saved in taxes if he was able to claim the exemption, which may be more than you saved in taxes by reporting the exemption yourself.