The CARES Act & Divorced or Separated Parents

“Perhaps due to the speed with which the law was passed, the Act is silent on how it will distribute the rebate money to parents who are divorced or separated.”

On March 27, 2020, Congress passed the CARES Act, a sweeping piece of legislation aimed at providing relief to individuals, families, and businesses adversely affected by the Coronavirus pandemic. The Act will have different repercussions for individuals in different circumstances, but the provision with perhaps the broadest impact is the recovery rebate. More commonly referred to as a stimulus payment, the recovery rebate is a one-time payment to US citizens and residents. For most the recovery rebate is good news, but for unmarried, divorced, or separated parents sharing custody of their children, the rebate may usher in unwelcome complications.

Individuals who make less than $75,000 will receive $1,200 plus $500 for each child that qualifies for the Child Tax Credit. However, many parents who share equal parenting time with their children alternate which parent claims the Child Tax Credit from year to year. Perhaps due to the speed with which the law was passed, the Act is silent on how it will distribute the rebate money to parents who are divorced or separated.

The recovery rebates are based on taxpayers’ 2019 tax return (or 2018 for those who have yet to file their 2019 return). The most likely result is that the parent who claimed the children in 2019 will receive the additional money for their qualifying children. This payment is a fully refundable tax credit, meaning it can be received by taxpayers regardless of what tax is owed. The rebates are technically a prepayment by the IRS of a 2020 tax credit; whichever parent claims the children in 2020 will have the rebate factored into their 2020 taxes. For parents who claim their children in alternate years, the tax rebate poses a unique problem that the IRS has yet to address. The parent who claimed their child in 2019 will probably receive the rebate if they have not already. However, the parent who will claim the child 2020 is also likely to receive the rebate after filing, if they did not receive it previously. What is unclear is whether the IRS will require the return of any overpayment, if not both parents may benefit from the stimulus.

The IRS may address this issue in future guidance, but we recommend that amicable co-parents be proactive in discussing how they will use the rebate money so that it can best benefit the child. A frank conversation about how to use the money may prevent disagreements in the future. While we encourage parents to reach out to their attorney with questions related to the rebate, it is likely that the cost of litigation to resolve this issue will far exceed the amount of the rebate.

Emily Clark Cuellar is a litigator at Samuels Yoelin Kantor. Her practice is centered around families, and her passion is helping families navigate all the various obstacles they may face. Her practice focuses on domestic relations and fiduciary and probate litigation.