Whether your child is in grade school or nearing the end of high school, you’re likely concerned about how a potential divorce will affect their college savings. Regardless of whether you’ve been setting aside money to cover the majority of their college expenses or you’re simply hoping to lower their eventual student loan debt, it’s important to address what will happen with that money.
If that money is in a bank, investment or retirement account that you’ll be dividing during divorce or it’s in a tax-advantaged 529 college savings plan, it’s wise to codify some agreements to help ensure that it will continue to grow – likely with the help of both of your contributions.
Some couples agree to have their own college savings accounts for their children after divorce and to contribute a specified amount to them each year. They may set up some type of joint account solely for college savings – again, with an agreement to both make contributions based on their ability to do so.
Do you have a 529 college savings plan?
If your child’s college money is in a 529 account, it’s important to understand the unique regulations imposed by the federal government and individual states. For example, only one parent’s name can be on the account (with the child as the beneficiary), but each parent (and grandparent) can open an account.
Therefore, it’s crucial to find a way to divide the proceeds in your current account without triggering penalties so that you can each have an account in your name. Further, you can codify an agreement that no withdrawals or changes are made to your accounts without the other parent’s permission.
No couple wants to sacrifice their child’s college savings in divorce. With sound legal guidance and potentially the help of financial and tax advisors, you can better protect your child’s future and your own.