When you begin saving money for your child’s college education, divorce
is likely the furthest thing from your mind. However, if you do decide
to divorce, there is a chance that the funds will be subject to property
division. How can you ensure that the money you have saved for your child
will indeed be used for its intended purpose? This question must be addressed
in your separation agreement.
Parents who wish to save for their child’s education may do so by
investing in a tax-deferred 529 College Savings Plan or a Custodial account.
Depending on the type of account, or more specifically, who
owns the account, the money may or may not be protected from asset division
Who Owns College Savings Accounts?
Custodial accounts are established at financial institutions for the benefit
of a minor child. These accounts belong to the child, with a parent named
as the custodian. In other words, the parent(s) make an irrevocable gift
to the child for funding his or her education. Because the money is a
gift to the child which the child now owns, the money will not be subject
to division should the parents divorce.
A 529 College Savings Plan, on the other hand, is opened in a parent’s
name on behalf of his or her child. Because the money is owned by the
parents and not distributed to the child until he or she begins college,
this type of account is subject to division at divorce.
How 529 Accounts are Handled During Divorce
If you and your spouse opened a 529 account, you will need to decide who
will take ownership of the account after divorce, or decide on another
option such as splitting the account. It is important that you come to
a mutual agreement on this matter, as whoever becomes the sole owner will
be the only person who can make decisions about how the funds are used.
In many cases, it may be in your best interest for the non-custodial parent
to take control of the account because the non-custodial parent’s
income and assets are not included on the FAFSA, which means that the
student may qualify for more financial aid.
If you decide to split the account, both you and your ex-spouse will be
able to continue making contributions to your child’s college fund
without having to worry that your ex-spouse will close the account or
take your money. There are no penalties or fees to go this route.
Speak with an Attorney About Your Case
There are numerous considerations parents must look at when it comes to
protecting assets meant for their child’s higher education. To ensure
that your child’s best interests are served, consult with a Portland
divorce attorney at McKinley Irvin. Our divorce lawyers can help you come
up with a plan that will protect this important asset. We invite you to
to schedule an evaluation of your case.