Divorce may be about a fresh start for you. For your college-bound child, divorce could seem like a barrier, especially if well-laid plans years ago do not carry over. However, with a bit of planning for divorce and college savings, it may be possible to protect your child's college savings and minimize financial loss. Now is a good time to consider this divorce planning task.
Attorney Sharon Jackson LLC can help. Contact us to discuss your legal needs and how we can make changes at the end of the year.
Divorce settlement agreements or orders put in place by the judge typically include all assets owned by the spouses. You may not be thinking about the 529 plans in divorce since those funds are set aside for a named child. However, your divorce settlement could include these college savings plans (no matter the type).
Specifically, you want to ensure all college savings plans are outlined in the divorce. That should include who will maintain the account, who and how they can be added to, and what long-term objectives apply. These are some of the most common assets overlooked in divorce settlements. Yet, including them minimizes the risk of potential disputes later.
Disagreements often develop regarding what uses are permissible, who controls the college funds, and when the funds may be used. After a divorce, parents may disagree about whether or not it is permissible to use the college savings funds for the child prior to college for SAT tutoring related to college, extracurricular activities that may help the child get into college, writing coaches or similar reasons. Similarly, once the child is in college, one parent may want the funds to only be used for tuition while the other parent may want to use the funds for room, board, books, and other expenses for the child.
Who is the owner of the account? The owner could be the custodial parent or a non-custodial parent. You built this savings account to meet the financial needs of your college student, and you want to be sure those funds meet those objectives are used for that specific purpose. The person who owns the account – even if they are not the custodial parent of the child – will have control over how those funds are used, invested, and managed.
It is critical, then, that you designate a responsible party to manage the account. This person should have the sole objective of supporting the unique needs of the child, meaning that their objective is to use those funds designated for the child as originally planned.
Often the accounts are in the names of both parents. If however, the funds are just in one parent’s name, this does not automatically mean that the named parent will have control over the funds. The parties can agree on who controls the funds and how the money is used. Absent an agreement, the courts will decide.
If the money is a custodial savings or checking account for a minor, advise your divorce attorney to safeguard against either parent using the funds instead of allocating the funds for the child’s education. If the money is in a 529 College Savings Plan or other plan that is specifically limited by the IRS, you have to follow the plan rules outlined by federal and/or state law.
Some parents also utilize insurance policies to save for their child’s college. Don’t forget to discuss this with your divorce lawyer to ensure specific protections are included in your divorce settlement agreement or litigation. The courts can require the controlling parent not to borrow against the policy and to produce receipts and records to the other parent to confirm that the funds are used for limited and permitted purposes related to the child..
Speaking with your divorce lawyer about college planning after divorce is important since situations can differ significantly between parties. However, it is a good idea to discuss future contributions to college plans when possible. Because your finances will be separate after the divorce, it is critical to ensure there is a plan going forward.
With the help of a Metro Atlanta family lawyer, you will gain better insight into what your options are based on the specifics of your case and your goals.
Also notable is to update all beneficiary information related to the child's college savings plan as necessary. Parents should update the account beneficiaries and contact information to reflect any new family structure or dynamic. Sometimes, this may not change. Other times, it could be critical to update account details to minimize the risk of the funds not achieving their objective.
Divorce agreements and educational funds can be tricky. You need to consider not only your child's short-term and long-term needs and goals but also your personal finances, tax requirements, and new objectives that need to be met. To achieve this, set up some time to discuss your situation with a financial planner or your attorney.
Consulting with a professional ensures college savings plans are addressed in an equitable manner. Most importantly, you need to be sure that they are handled legally within the divorce agreement. Clarity here can make a difference in the long term.
Financial aid after divorce may not be something you have thought about, but it can play a significant role in what your child pays for their college education. Divorce may affect FAFSA applications and children's financial aid eligibility.
These financial aid packages are often based on the parent's expected contributions as well as financial means. More so, where your child lives, your income and both parents' ability to contribute will play a role in determining if they qualify for financial aid and, if so, how much.
If your child is planning to go to college, discuss options with a financial planner about how decisions about college savings plans, assets, and living arrangements could impact their ability to qualify for financial aid. Be sure that you have documented divorce agreements that help simplify the financial aid process, too. Your attorney can help you gather these documents to minimize any risks of miscommunication when the time comes to apply.
Co-parenting and college expenses may seem far off to you, but now is the best time to reach out to a Metro Atlanta family lawyer to have these accounts. At the end of the year, you have an opportunity to make financial adjustments that could impact your tax obligations for the year. Resolving college savings disputes now will directly impact the taxes you pay later.
It is not uncommon for these decisions to be put off, especially if children are older. However, as you work on divorce agreements and education funds, be sure you take some time to carefully adjust and modernize your college savings plan objectives and strategies.
Any issues not agreed upon by the parents before the final divorce trial will be decided by the courts. The judge will evaluate who contributed to college funds and who facilitated the creation of the savings. If grandparents or family members made donations or set up accounts, the courts will evaluate their intent. Fiscal responsibility and the ability to safeguard the financial assets for the child is another consideration. The courts will consider whether or not the funds can be legally divided based on the type of savings plan.
Georgia courts will not require parents to create college savings plans. With the exception of additional support for special needs children who meet certain criteria, Georgia does not mandate that parents pay for any portion of a child’s college education. This is strictly voluntary. If the parties have already established college savings prior to filing for divorce, the courts can make provisions and orders related to the current and future funds. If you don’t already have college saving assets, do not worry, the courts are not going to make you go out and create one!
Attorney Sharon Jackson LLC is ready to guide you. Our end-of-year resources can help you make decisions about income, college savings, taxation, and much more now before the year ends. Contact us at (678) 436-3636 now to schedule a consultation to discuss the options available to you.
Attorney Sharon Jackson LLC
175 Langley Drive, Suite A1
Lawrenceville, GA 30046
Phone: (678) 909-4100
