When a couple has a child together, planning for the future is an important element of child-rearing and a college savings account may come into play. Unfortunately, when the parents decide to divorce, the original college savings plan could be completely changed.
To help ensure your child’s future is protected and safe, learn about how a child’s college savings is affected during a divorce and ways you can ensure your child’s educational future remains protected through the process.
1. 529 Plans
In the state of Washington, specific 529 savings plans are available for parents to contribute to on an annual basis for their child. The savings accounts have very high limits, and some married couples may choose to invest a lot of money into the accounts.
As you go through a divorce proceeding, the court may view the 529 savings account in various ways. To keep the account separate from other assets, you may request the whole account is set aside and viewed as an asset for the child.
In some divorce cases, the 529 plan may be seen as a direct asset and could be awarded to the primary residential parent. If the account gets split in the asset divisions of a divorce, the 529 account often cannot be closed or transferred. In cases where a split gets mandated, the parent who gets primary custody of the account may have to reimburse the other parent with half of the full amount.
When the other parent receives the money, they may create their own separate 529 plan for the child. Splitting the account could be complicated. With a family law attorney, you have the ability to pursue the account as the child’s asset. For contributions in the future, each parent can make a new account for the child where they individually contribute.
2. College Support Degree
As part of a divorce agreement, one or both of the parents may have an obligation to provide post-secondary child support. Essentially, the post-secondary support order puts into writing that the parent will help pay some or all of the college tuition owed by the time the child is old enough to enroll in college.
In some cases, a 529 savings plan may be included as part of the order and could help add up to the support agreed with. College assets and 529 plans may become complicated, so some legal advice could help determine how a 529 plan that was started before or after the divorce factors into the college support.
You may even set up a separate savings account directly aimed at college support through the purchase of books and other college supplies. In some cases, the college support order decree could depend on income levels at the time. If one parent makes a significant amount more than another, then the split could be 75 percent and 25 percent for college savings rather than a direct 50/50 split.
Even with a young child, college savings become an important factor of a divorce and could lead to major problems in the future if there is nothing in writing. A post-secondary support order can put a plan into writing so that the child doesn’t have to wait and wonder where that support will come from.
3. Financial Aid Applications
One of the main ways students help pay for college is through financial aid applications. When a child of divorce applies for financial aid, they only have the ability to list the parent that has primary residential status and that they live with for a majority of the year. Because most years have an odd amount of days, even a 50/50 residential placement agreement will have one parent get more days in a year.
Keep the residential placement element in mind as you consider college planning for your child. A parent with less income will help a child get more financial aid and could be a custody factor to consider during the teenage years.
College may be years away for a child, but it is still an important factor to consider during a divorce. For more help and guidance through the process, contact our family law professionals at Madison Law Firm, PLLC. We want to provide the care and comfort to get through the divorce and any obstacles along the way.