On behalf of Stange Law Firm, PC posted in Child Custody on Wednesday, September 2, 2015.
In our last post, we began a discussion about divorce and its potential impacts on funding college for your kids. If you have minor children and are seeking custody, you may have more immediate concerns than paying for college – especially if your children are still very young.
Nonetheless, decisions made now could have an impact on the cost of your child’s college education and how it is paid for. In today’s post, we’ll discuss how some former couples manage their tax-advantaged 529 savings account.
If you have opened a 529 account on behalf of your child, chances are good that your spouse is also listed on the account and has joint control. When you get divorced, you may need to either take full control of the account yourself or give control fully to your former spouse. Whichever parent does not control the account should at least be an authorized user, which means that he or she would be able to track activity on the account (but could not move money around).
Some financial experts recommend giving ownership of the account to the non-custodial parent. This is because when parents fill out the FAFSA for their child, only the custodial parent’s assets are considered. Keeping the 529 with the non-custodial parent could prevent it from being “counted” in the Free Application for Federal Student Aid.
Giving ownership to one spouse is not the only way to handle a 529 account in divorce. The account could be frozen so that neither parent can take money out (a good option during contentious divorces). It could also be split into two equal accounts. A judge can order that an existing 529 be divided in two so that each parent has control over 50 percent of the funds deposited jointly and full control of any deposits made thereafter.
Even if your kids are young right now, helping them pay for college can require saving for a decade or more. If you have already started doing so and would like to address college savings in your divorce settlement, please discuss this with your family law attorney.