The 2021 enhanced child tax credit has helped millions of American families during a difficult economic time. Most parents of children up to age 17 received thousands of dollars in credit on their tax bills. For many households in Schenectady and Saratoga counties struggling with unemployment, this relief has helped pay for basics like groceries, housing and schooling.
However, if you are in the midst of divorce, the child tax credit could make things a little more complicated.
What can you do with the enhanced tax credit in your divorce settlement?
To qualify for the special credit, a parent must pay at least 50 percent of their child’s expenses and live with them at least half of the year. For married parents, both spouses benefit from the credit. But for separated or divorced parents, generally, only the parent who has child custody most of the time can claim it.
However, the qualifying spouse has the right to transfer the credit to their co-parent if they want. This makes the enhanced child tax credit a potential bargaining chip in property division negotiations.
For example, one spouse could transfer the credit to the other in exchange for the second spouse agreeing to reduced and/or shorter-term spousal support. Or they could swap the credit for the family car. The details depend on the parties’ particular circumstances, needs and goals.
Consider all the implications
If you are getting divorced this year and agree to a child tax credit transfer, it’s important that you know the potential tax implications. Consulting with your divorce attorney should give you the answers you need to avoid unwanted consequences and inform your decision on what to do with the credit.