One of the issues to resolve in a divorce cases is the allocation of the dependency exemptions. While the IRS says that they should go to the custodial parent, by and large, states, including New Jersey feel that they can allocate the exemptions between parents and there is case law to that affect.

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In most cases, there is either the blind division/alternation or the unnecessary, if not absurd, fights about the allocation of the dependency, often because no one has taken the time to see what they are really worth to the parties.  The high six or seven figure earner demanding the exemptions when he or she gets absolutely or virtually no benefit from the exemption, or worse yet, the other parent who would get a real benefit not fighting for it the cases.  High income earners phase out of the benefit of exemptions under the IRS code but that doesn’t stop them from fighting for them and/or from the court automatically dividing or alternating them.  I have seen this occur even when we have demonstrated the lack of benefit.

That said, should you be entitled to claim the exemption if you have not paid all of your child support during the year?  Many people would argue no. There is finally a case that you can cite to that stands for this proposition – specifically, Zeitlin v. Zeitlin, which is Judge Jones’ unreported (non-precedential) opinion dated December 19, 2014 that was released on or about May 25, 2015.  The Judge gave three reasons why the court may suspend a payer’s right to claim a child dependency exemption if there are child support arrears which remain unpaid at year’s end.  This was the case even though parties’ settlement agreement does not explicitly contain a provision “… directly conditioning the child dependency exemptions upon his concurrent duty to stay current on his child support obligation.”  This author thinks that this should be implicit in any event.

The court agrees and that was first reason given.  Judge Jones noted:

First, even though the parties’ settlement agreement does not expressly state same, the court finds that there is logically an implicit relationship between the child dependency exemption and the parental child support obligation. In this case, defendant’s right to claim a child dependency exemption is inherently and equitably intertwined with his duty to pay child support. The concept of a non-custodial parent receiving a child dependency exemption is generally based on the presumption that such parent is in fact financially supporting the dependent child or children, in a manner mandated under a court order or otherwise agreed by the parties. If, in such a case, the non-custodial parent breaches the child support order and accumulates substantial unpaid arrears, then the very foundation for that parent’s right to share in the tax exemptions collapses. For this reason, even when a divorce settlement agreement contains no language directly linking the non-custodial parent’s right to claim the tax exemption to faithful payment of an existing child support obligation, then absent clear evidence to the contrary, a court of equity may infer the natural existence of such a relationship of common sense and fundamental fairness.

…Hence, logic compels the conclusion of an equitable connection between the provisions. If this were not the case, then defendant could simply continue to accrue significant additional arrears, leaving plaintiff to essentially support the children by herself while defendant receives an annual tax break for her efforts. Such a result would be not only inequitable, but arguably unconscionable as well.

 The second reason given was that the accrual of arrears is a change of circumstance … “warranting equitable relief, since plaintiff is now deprived of over ten thousand dollars in support funds which she was entitled to receive and utilize in raising the parties’ children.”  It is interesting that the judge intertwined enforcement/failure to comply with a changed circumstances, as that often is not a winning argument when made by lawyers.

The third reason, which I think really would trump the second reasons, is that this could be a permissible and appropriate economic sanction for failure to pay support.  Judge Jones held:

A third legal basis supporting plaintiff’s motion to modify the tax exemptions rests in Rule 5:3-7(b), which permits a court to take action against a party who violates a child support order. Such action may include, but is not necessarily limited to, economic sanctions (R. 5:3-7(b)(4)), and any other appropriate equitable remedy (R. 5:3-7(b)(8)). The suspension of a delinquent payor’s right to claim a child dependency exemption, until he/she satisfies his court-ordered child support balance, constitutes an appropriate sanction and equitable remedy under sections 4 and 8 of Rule 5:3-7(b).

The judge did point out that the mere existence of arrears should not automatically invalidate the agreed upon right to claim the exemption.  The judge noted that if the arrears were not due to a failure to comply with an order, but rather, from a retroactive award or adjustment of child support or some other “technical adjustment”, it might not be fair to take away the right to claim the exemption.  Put another way, if the arrears were no fault of the payor, then the exemption probably shouldn’t be taken away.

While much of this may be common sense, the relief was not universally granted in my experience.  This opinion, at least, gives greater credibility to the argument.

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Eric SolotoffEric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Roseland and Morristown, New Jersey offices though he practices throughout New Jersey. You can reach Eric at (973)994-7501, or esolotoff@foxrothschild.com. Connect with Eric: Twitter_64 Linkedin

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  • Robert Goldstein

    Always put this in my MSAs when I represent the payee.

  • David Perry Davis

    When parties are sane enough to want to do what is best for both of them, I generally suggest that they cooperate using a mutually agreeable accountant who will respect privacy, and have the accountant calculate which parent will receive the greatest benefit from claiming the child. That parent claims the child and pays 50% of the benefit over to the other parent.

    On whether the exemption should be lost as the result of arrears, my only problem with Judge Jones’s decision is that it does not turn on whether or not there was willful noncompliance. That should be key. If the parent is in arrears because they lost a job, became disabled or some other circumstance beyond their control, it is punitive to say that they will lose the exemption. Plus, if there are arrears over a certain amount, any refund is going to be intercepted by the IRS and paid over to the other parent.