It is option 2.
The IRS does not provide specific guidance to your situation except to state what you need to be clarified.
Keep in mind, however, that only one of you can claim the children. Also, you will be using the head of household category, not married filing jointly.
When he files his Earned Income Credit for 2020 using 2019 earned income, it will only be for a single individual.
Therefore, there would be no double counting for the 2019 income even if you both used 2019 earned income.
To see for yourself, enter your details into this IRS assistant: Use the EITC Assistant.
For more details, see:
How do I amend my 2020 TurboTax Online return?
IRS Publication 596: Earned Income Credit (EIC) on page 3 states that 2019 earned income may be used to figure 2020 earned income credit. There is no further directions for adjusting 2019 earned income following a divorce.
IRS Publication 504: Divorced or Separated Individuals which also talks about who can claim the Child Tax Credit for the children.
@DeanieO
