In a recent case, the Massachusetts Appeals Court revisited the federal tax code’s provisions on the allocation of child dependency exemptions between divorced parents. In upholding a probate judge’s decision to award a child’s exemption to the non-custodial but child support-paying father, over the mother’s objection, the appellate court reviewed current tax regulations and concluded that state courts continue to have the power to direct the exemptions as deemed appropriate.
But, but that since the court’s judgment alone is insufficient to satisfy the IRS’ requirement that the custodial parent “release” the exemption, the appellate opinion clarified that the trial court must also specifically order the custodial parent to sign [and presumably deliver] an IRS Form 8332 release to make the assignment effective. The failure to sign or deliver the form, then, becomes the state court enforcement (contempt) trigger.
At first glance, we wondered: “why did they bother?” Most divorce lawyers are familiar with Form 8332 and its effect. Then, we asked why she bothered. The mother appeared to have no financial stake in the outcome of her own appeal (for which she presumably paid legal fees), since her income was too low to have the exemption save her any tax dollars, even if she did wrest the exemption back from the father. Perhaps, the associated federal tax credits made the exercise worthwhile, or maybe her motivations were non-financial.
Then, on second thought, we realized that the case is a useful reminder to all family law drafters. This includes Massachusetts divorce mediators who write separation agreements, lawyers who draft proposed judgments for judges and suggested awards for divorce arbitrators, and for arbitrators themselves, that best practice dictates that dependency exemption provisions make reference to Form 8332 and place an affirmative obligation on the releasing party to sign and deliver. Otherwise, a client who does have a discernible stake in the having the dependency exemption just may not get it.