Some of the financial issues implicated by child custody arrangements and court orders are (1) child support payments; (2) payment for health insurance; and (3) the ability to claim the child or children as dependents for tax purposes. The Internal Revenue Service (IRS) rules dictate that the parent with whom the child spent the most nights during the tax year has the right to claim the child as a dependent. And if the child spends an equal number of nights with each parent during the tax year, the parent with the higher adjusted gross income (AGI) has the right to claim the child as a dependent. Sometimes the child custody court will order the parents to alternate years of claiming the child as a dependent.

In Alabama, child custody arrangements and court orders often address financial responsibilities such as child support payments, healthcare costs, and tax exemptions. Child support is determined based on the Income Shares Model, which considers the income of both parents and the needs of the child. The non-custodial parent typically pays child support to the custodial parent. Additionally, the court may order either or both parents to provide health insurance for the child. Regarding tax implications, the IRS rules state that the custodial parent, defined as the parent with whom the child spent the most nights during the year, is generally entitled to claim the child as a dependent for tax purposes. If the child spends an equal amount of time with both parents, the parent with the higher AGI is entitled to the claim. However, Alabama courts can order parents to alternate the years they claim the child as a dependent, which should be reflected in the custody agreement and adhered to by both parties for tax filings.