Custody of College Savings

For most couples, saving for the future education of their children is an important consideration. Couples do not contemplate splitting up and deciding what happens to the money that was saved. Many couples save money for college by starting a 529 plan. A 529 plan is a tax-deferred college savings plan that functions much like a retirement account. You only pay taxes on it when you withdraw later to pay tuition.

A 529 account allows parents to set aside money weekly, so that college expenses do not overwhelm them later. One appealing attribute of 529 accounts is that they are not considered assets when filling out your FAFSA form for financial aid. The money you set aside in the account will not cause you to be denied aid.

What Happens During Divorce?
If a couple divorces before the child goes to college, that account can be split in two, as part of the division of property. On occasion, one of the two halves will be put to other use. One parent is often named the owner or custodian of the account. In the divorce, both parents agree to make withdrawals only by agreement of both sides.

It is still possible that the designated custodian of the 529 account make unauthorized withdrawals. When this happens, the non-custodial parent has the option of going to family court to demand reimbursement of the missing monies.

Other 529 Options
In most cases, it is wise to split the 529 down the middle as part of the divorce. This lets both sides continue contributing to the fund without having to worry if the other party is draining the account. Another option is to seal the 529 account, so no funds can be added or taken out.

As a last resort, you may consider shutting the account down in your divorce agreement. This is an option when trust between the two sides is very low, or money is very short. However, there will be taxes and penalties for closing the 529 immediately. In any event, it is critical to resolve questions about the funds in the 529 account.

View Attorney Profile

Philip Smith Burnham II

Licensed since 1990

Member at firm Burnham Law Group, LLC

RECENT POSTS

  • Gray Divorces and Their Impact on Finances
    Posted on February 15, 2019

    Since 1990 the rate of divorces for couples over the age of 50 has doubled. These types of divorces are often referred to as gray divorces. For many of those involved, divorce will actually result in happier golden years. For many of these individuals, their divorce has been the culmination of decades of marriage, yielding ... Read more

  • Dating Before Divorce is Final
    Posted on February 15, 2019

     Divorce is not only stressful, but in many cases, it can also be lonely. Separating from a spouse often leaves individuals longing for the companionship that they once had, and many are not used to being alone. That is why it is not all too surprising that many people desire to start dating during the ... Read more

  • Can I Keep My Pension After Divorce?
    Posted on February 8, 2019

    Marriage is a commitment born out of love, but it is also an economic contract. Long after the romance has fizzled out, real concerns about how to divide the assets couples have acquired during the marriage remain; one of these assets being a pension. While a pension earned by one spouse is considered joint marital ... Read more

Philip Smith Burnham II

Licensed since 1990

Member at firm Burnham Law Group, LLC

RECENT POSTS

  • Gray Divorces and Their Impact on Finances
    Posted on February 15, 2019

    Since 1990 the rate of divorces for couples over the age of 50 has doubled. These types of divorces are often referred to as gray divorces. For many of those involved, divorce will actually result in happier golden years. For many of these individuals, their divorce has been the culmination of decades of marriage, yielding ... Read more

  • Dating Before Divorce is Final
    Posted on February 15, 2019

     Divorce is not only stressful, but in many cases, it can also be lonely. Separating from a spouse often leaves individuals longing for the companionship that they once had, and many are not used to being alone. That is why it is not all too surprising that many people desire to start dating during the ... Read more

  • Can I Keep My Pension After Divorce?
    Posted on February 8, 2019

    Marriage is a commitment born out of love, but it is also an economic contract. Long after the romance has fizzled out, real concerns about how to divide the assets couples have acquired during the marriage remain; one of these assets being a pension. While a pension earned by one spouse is considered joint marital ... Read more