By: Catherine Schnaubelt | Forbes.com
Divorce can be complicated and emotional, especially when children are involved. Every family is different when it comes to determining where the children should live and how their time is best split between parents. Nevertheless, courts typically require one parent to pay child support so that the parent with primary custody isn’t solely responsible for maintaining the children’s standard of living.
Calculating each spouse’s share of the financial responsibility can be challenging, especially since the rules for determining child support are relatively fluid. Each state has its own guidelines that help its courts decide how child support is to be paid in a divorce. Courts can deviate from these guidelines when appropriate, and parents usually have the flexibility to come up with their own arrangements if the court agrees.
Like any issue in divorce, there’s no one-size-fits-all solution for determining who will bear the brunt of financially supporting the children. Still, if you’re going through a divorce and have minor children, the following considerations may help frame the conversation.
Child support calculations are often based on each parent’s income, the number of children, and the percentage of time each parent spends with the children. Courts may also consider spousal support as well as who pays for childcare, health insurance, education, and school expenses. No matter the formula, the focus of the calculation is on the need for support.
Importantly, the court’s decision can be altered as circumstances change. For example, one parent may lose their job, become disabled, receive a meaningful inheritance or substantially increase their income. When necessary, divorced parents can return to court to modify their child support arrangement.
In many cases, the spouse collecting spousal support also collects child support. However, it’s important to remember that child support usually takes precedence over spousal support. If, down the road, a court determines that child support payments can be reduced, spousal support will often also be reduced—this is one reason why one parent cannot unilaterally modify the agreed-upon arrangement.
As a result of the Tax Cuts and Jobs Act of 2017, child support payments are considered outside the tax system for both the recipient and payor. Under the current tax code, the recipient is not taxed on child support collected, nor can the payor deduct the payments from his or her taxes.
On the other hand, a split-custody arrangement may have tax implications for one or both parents. Specifically, a child can only be claimed as a dependent by one parent, meaning only one parent can take the exemption on their taxes. Typically, the parent who has physical custody of the child for the largest portion of the year takes the exemption. However, the exemption can be traded back and forth between each parent from year-to-year by filing an additional form. Divorced parents can also divide the exemptions if they have multiple children. For either parent to claim the exemption, the child must live with one of the parents for more than half the year. Since dividing and trading exemptions can be thorny, it’s usually best to work with a tax professional for a reasonable solution for both parties.
Child support can be a hot-button issue in a divorce. No matter the arrangement, it’s entirely possible for both parents to feel disadvantaged. Still, many issues can be worked through so long as the children’s best interests are the focus. If you’re preparing to go through a divorce or are already in the midst of one, it can be helpful to discuss the situation with your wealth advisor or another trusted financial professional to prepare for the complexities associated with paying or collecting child support.