COVID-19 “CARES Act” and Divorce

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The CARES Act provides recovery rebates or economic impact payments for qualified individuals of up to $1,200 ($2,400 in the case of a joint return) and up to $500 for each qualifying child. If you have already filed a 2019 tax return, the IRS will use 2019 to calculate the payment amount and issue the payment. For those who have not yet filed their return for 2019, the IRS will use 2018 to calculate the payment amount and issue the payment.

If you are divorced or going through a divorce and have most recently filed a head of household, married filing separately, qualified widow or widower, or single return the economic impact payment will be deposited directly into the same banking account reflected on the return filed. You will want to ensure your address is correct. Please note that if you filed as married filing separately and your divorce is not final the payment will likely be considered marital property pursuant to KRS 403.190.

If you are divorced or going through a divorce and have most recently filed a married filing jointly return, the economic impact payment will be deposited directly into the same banking account reflected on the return filed. If that account has been closed, it will be sent to the address on the return. Again, you will want to ensure your address is correct. If your divorce is not final the payment will likely be considered marital property pursuant to KRS 403.190 and addressed, along with any impact on 2020 taxes, in any Marital Settlement Agreement or Final Order. If your divorce is pending, you and your former spouse may need to come to an agreement regarding the economic impact payment, considering its future tax impact, or pursue litigation.

It appears that the $500 for each qualifying child will be paid to the parent who most recently claimed the child under 26 U.S. Code § 24. As this may be the noncustodial parent, or a rotated benefit, we anticipate there will be conflict in determining which parent is entitled to the economic impact payment. Kentucky Courts have held that “the award of a tax exemption to a party who does not qualify for it under the Internal Revenue Code… requires the state trial court to meet the heavy burden of stating sound reasons that this award actually serves as a support issue benefitting the child. Adams-Smyrichinsky v. Smyrichinsky, 467 S.W.3d 767, 784 (Ky. 2015). We anticipate Kentucky Courts may consider the best interest of the child, however, as this is a 2020 tax credit, such an analysis could give one parent a windfall. Future treasury guidance may clarify these situations.

If you and your spouse or former spouse are unable to come to an agreement regarding the economic impact payment, you may want to consider consulting at attorney. While all civil dockets have been canceled for non-emergencies, creative solutions may be available. We at Diana L. Skaggs + Partners, PLLC are continuing to meet with clients and prospective clients via Zoom, FaceTime, or telephonically, and are always available for new client inquiries on our website.

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