Joint custody financial considerations: What do you need to know?

During the custody aspect of your divorce proceedings, the only thing that may concern you is getting custody of your children. As a result, you may do whatever is necessary to ensure you get at least half, if not the majority of, custodial rights, including exaggerating a bit about your finances.

While you are probably not the first to use this strategy, most legal professionals will agree that the best thing you can do during custody proceedings is to be honest about your capacity to care for your children. According to Kiplinger, this includes being honest about what you can reasonably afford. While you assess your finances, you should keep the following considerations in mind.

Only one parent can claim the children as dependents

The IRS has increased child tax credits over the past year, which is good news — if you can claim your children as dependents. Typically, only the custodial parent can claim the children on his or her taxes. The custodial parent is the parent with whom the children live a majority of the year. However, you and your ex-spouse may agree to alternate each year, in which case you would have to keep track of whose year is whose.

Alimony recipients can no longer claim support as income

In 2017, the government passed the Tax Cuts & Jobs Act, which, among other things, rendered alimony non-taxable. Prior to the passage of this act, alimony recipients could claim alimony as taxable income, and payees could write off payments to lower their tax bills.

As a payee, this is important to know because now you will have to account for support payments and the increased tax bill. As a recipient, it is important to know because you cannot count alimony as part of your gross income. This may affect your future plans, such as buying a home or applying for credit.

Custody arrangements could affect financial aid for college

When your child is of college age, he or she may apply for FAFSA, which is federal student aid. On the application, your child may only include the income of the custodial parent. If the custodial parent is a high-income earner, it could affect your child’s ability to get assistance. If this is the case, you and your former spouse may want to discuss having your child move in with the lower-income earner for the year leading up to college.

You may have to go back to court

Things change, and despite your best efforts, you and your spouse may have to return to court to smooth out a few issues your original decree does not cover. It is important that you account for this possibility and set aside funds monthly, just in case.