After a legal separation or divorce, the parent who has custody of the children can sign over the dependency exemptions to the other parent. If the non-custodial parent is in a higher tax bracket, the exemptions may be worth more.
Planning points:
For the custodial parent. The exemptions should be signed on a yearly basis; granting an upfront waiver that will last for years may not be advisable. Keeping open your option to sign or not sign each year can help to assure that your ex-spouse will comply with child support and alimony obligations.
For the non-custodial parent. Making negotiating concessions in return for the dependency exemptions won’t make sense if you have lofty adjusted gross income (AGI). A phaseout reduces the benefits of all dependency exemptions, beginning at $139,500 for single filers this year. Once a single filer’s AGI tops $262,000, dependency exemptions provide no tax benefit.