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How to Plan for Your Child’s College Education During a Divorce

Posted on October 12, 2020 by Chris Kirker

If you are considering or facing a divorce, and you and your spouse have children together, it may seem impossible to think past the next few weeks or plan for the future. It may seem doubly impossible to plan for something as daunting as how to pay for your children’s college education. However, there are steps you can take during a divorce that will help you prepare for your children’s college education, beginning with any divorce agreement

In a divorce agreement, you and your soon-to-be-ex-spouse agree to certain outcomes of the divorce – who gets the marital residence, who keeps which pet, etc. A divorce agreement may also include details regarding how much each parent will pay for their children’s future college. Common arrangements include: (1) splitting all expenses 50/50; (2) splitting all expenses proportionate to each parent’s income; and (3) making periodic contributions of a certain amount to a college savings account.

Many agreements also include time-limitation clauses, by which the parents’ obligation to contribute college funds expires after a certain time period (for instance: five years after the child starts full-time college classes). It is also important to specify what kinds of contributions will count towards this quota – will disbursements from a college-savings plan go towards the 50%, or do you have to use the savings plan and pay 50% on top of that?

A commonly used tool in planning for college is a 529 plan, which allows funds to appreciate and be spent on school-related expenses tax free. If you and your spouse own a 529 plan at the time of your divorce, you will have to decide whether to split the plan or transfer it entirely to one spouse. If you and your spouse decide to split your 529 plan, you may consider splitting it directly into two separate 529 accounts. If you were to withdraw the money first, and then put that money into new 529 plans, it may face substantial penalties. When it is time for your children to apply to college, they may fill out a Free Application For Student Aid (FAFSA). Under FAFSA, they will be eligible for more federal financial aid if the 529 plan belongs to their custodial parent. 

Whatever choice you make regarding a 529 plan, it is important to specify in any divorce agreement how much each parent is expected to contribute to it. It is also important to be clear about whether these contributions, and the 529 plan in general, will count towards the overall contribution amounts each parent agrees to pay.

If you have questions about how to plan for and protect your children’s future during a divorce, please contact us to discuss your options.

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