This article explains how to treat a college savings 529 plan in divorce.
No matter how high it gets, college tuition seems to increase every year. As part of saving for your children’s education, you may have put significant assets into a college savings 529 plan. Created in 1996, these plans allow you some tax advantages as you save for college. Anyone can contribute to a 529 plan, which will grow tax-deferred while funds remain in the account. If used for qualified educational expenses, then they are exempt from income tax.
However, the owner of the 529 plan remains in control of the assets. In this way a 529 plan is unlike an irrevocable trust. The owner of a 529 plan can take the money and spend it, with the only consequence being paying taxes on the income.
In other words, your child’s assets in the 529 plan are not protected. There is nothing to prevent your ex-spouse from spending the assets in a 529 plan if he or she is the owner. For that reason, addressing the 529 plan in divorce is essential. While you both may be intent on providing for your child when he or she goes to college, difficult financial times could make it tempting for the owner to “borrow” money from the 529 plan, only to have difficulty repaying it back.
Fortunately, a divorce agreement can specify that 529 plan funds can only be withdrawn for use for a child’s education. The non-owner ex-spouse can also submit paperwork to receive interested party notifications as to the amount and performance of the assets in the 529 plan. In this way, there should not be any nasty surprises when your child goes off to college.
Address higher education in divorce
In Missouri, unlike many other states, child support obligations continue if the child enrolls at a vocational school or college after turning 18. This means addressing who will pay for a child’s higher education in divorce negotiations is vital. Parents could agree on a set dollar amount or a percentage of higher educational costs, for example.
There is no one right way to plan for your child’s education in divorce. What is required, however, is a thorough discussion of the issue that is reflected in the final divorce agreement. The failure to do so can lead to unforeseen consequences.
Speak to an experienced family law attorney about your divorce
Addressing higher education costs is only one of the numerous financial issues that must be addressed in divorce. To protect your financial interests and those of your children, speak to an experienced family law attorney. At Stange Law Firm, our attorneys understand the financial impact of divorce and can help you protect your rights.
Keywords: Divorce, child support, college education, 529 plan, asset division.