Ex-Wife's Income Question

[wolverine68]

What is the name of your state (only U.S. law)? Iowa

Okay, I hope you all think that this is as craqzy as I do:

Background- I was divorced from my ex in 2007. She doesn't have a job and earns no income (she lives of the support for the children). Because of this, the decree states that I can claim our four children as dependants on my tax returns even though she has full physical custody. There is a clause that says that if she earns over $22,000 in a year then she can claim one of the children as her dependant, but that she must show proof of the income and that child support payments would be adjusted based on that income.

Flash forward to last week- I got an email from my ex saying that she had realized a mistake on her 2007 taxes. Because she cashed out the half of my retirement money that I had to give her in the divorce (which was over $22,000) she could list that as income and therefore could claim a child as a dependant, get the tax credit and money from the stimulous check for him.

She's crazy, right? That money was an asset before the divorce, not income after it.

I do have a question that I have no clue about. She said that since that money was a one-time deal, it would not affect my child support. What if she won the lottery? That's a one time deal, shouldn't I still be able to modify my payments based on that?

Thanks in advance!
Sean

[thedoctorisin]

A distribution from your retirement plan counts as income for her, but it doesn't count as "earned income". Does the court order use the word "earn"?

[LdiJ]

Originally Posted by wolverine68

What is the name of your state (only U.S. law)? Iowa

Okay, I hope you all think that this is as craqzy as I do:

Background- I was divorced from my ex in 2007. She doesn't have a job and earns no income (she lives of the support for the children). Because of this, the decree states that I can claim our four children as dependants on my tax returns even though she has full physical custody. There is a clause that says that if she earns over $22,000 in a year then she can claim one of the children as her dependant, but that she must show proof of the income and that child support payments would be adjusted based on that income.

Flash forward to last week- I got an email from my ex saying that she had realized a mistake on her 2007 taxes. Because she cashed out the half of my retirement money that I had to give her in the divorce (which was over $22,000) she could list that as income and therefore could claim a child as a dependant, get the tax credit and money from the stimulous check for him.

She's crazy, right? That money was an asset before the divorce, not income after it.

I do have a question that I have no clue about. She said that since that money was a one-time deal, it would not affect my child support. What if she won the lottery? That's a one time deal, shouldn't I still be able to modify my payments based on that?

Thanks in advance!
Sean

This may seem like a strange comment, but its possible that you don't even receive the full benefit of claiming all 4 children. Therefore, before you get into the technicalities of whether or not she is entitled to claim one of them for 2007, you should really make sure just how much of a difference it will make for you. It takes fairly substantial income to benefit from the full tax effects of claiming 4 children, and if your income is very high, the benefits start phasing out.

If that was her only taxable income, and it wasn't too much higher than 22k, she would get a VERY substantial tax break claiming just one child. Significantly more than you would receive even if you get the full benefit. If you losing one child as a dependent does not actually effect you, or only effects you marginally, it may not be worth fighting about.

I have a feeling that a judge wouldn't deny her the right to claim one of the children just because the money wasn't wages. In addition, if she is the custodial parent she is the only one that legally has the right to claim the children for head of household and earned income credit purposes. The judge cannot award that to you. Therefore she still retains the legal right to do that, because that does not effect your ability to claim the exemptions and the child tax credits for the children.



I am a tax professional.