College Funding Issues to Resolve During a Divorce

The divorce attorneys at Rodier Family Law offer three steps divorcing couples should consider when addressing college funding concerns.

With college tuition prices steadily increasing by the year, many proactive parents have begun saving for their child’s college education shortly after birth. Even though couples are initially preparing together for the financial burdens of the future and a life-long marriage, the divorce rate in the United States continues to remain steady, and more people are being forced to plan and prepare by themselves. In those instances, what began as a joint college savings effort can soon become another convoluted layer to the divorce process.

Just because a couple decides to divorce doesn’t mean that continuing to co-save for a child’s education must come to an end. If you do plan to maintain a joint college fund after you and your spouse part ways, consider these three steps to help streamline the process.

  1. Determine the owner of the 529 plan. Since only one parent can be in control of the plan post-divorce, parents who jointly opened a tax-advantage 529 savings account for their child’s college expenses will have to decide which parent will undertake individual control of the account. When determining the sole owner, keep in mind that the parent with sole ownership will have total control over any decisions involving the account funds. Aside from assigning an owner, additional options that address operational concerns include freezing or splitting the account.
  1. Consider the tax advantages and implications. Federal tax deductions are available to the parent who claims the child as a dependent on his or her yearly taxes. These deductions would appear in addition to the tax advantages already gained from contributing to the 529 plan. Divorcing parents must determine who will claim the child as a dependent in order to take advantage of the IRS’s dependent exemption. It is critical for parents to fully understand their financial landscape before making tax-related decisions in their divorce so that potential benefits aren’t lost, such as having the parent with a higher annual salary claim the child as a dependent, and thus disqualifying the family for tax credits.
  1. Consider who will have child custody. In many cases where minor children are involved, determining a child custody arrangement can be more challenging than other aspects of the divorce. This decision not only determines the child’s primary caregiver, but it also impacts the child’s financial aid eligibility when he or she reaches the time for college.

On the Free Application for Federal Student Aid (FAFSA), it is the custodial parent’s finances that are used to determine financial aid eligibility. However, more than one-third of colleges ask for additional financial aid forms, which include the noncustodial parent’s financial information. Therefore, parents need to consider every source of income when determining the best course of action for obtaining financial aid.

As always, consult with your divorce attorney about this important decision if you and your spouse are struggling to determine the best strategy to maximize financial benefits with a 529 plan post-divorce. Failing to plan accordingly could result in a loss of significant financial benefits, which could be detrimental when the time comes to pay the tuition, especially after you’ve done all the hard work to save.

For more information on settling college funding issues during a divorce or your individual family law needs, contact the divorce attorneys at Rodier Family Law.


The content of this article is intended to provide a general guide about the subject matter. A licensed Maryland attorney should be sought about your specific circumstances. Additionally, please note that the attorneys at Rodier Family Law are not Tax Accountants, Certified Public Accountants or Tax Advisors. Our office will work closely with our client’s Tax Advisor to address that individual’s unique situation and needs. It is important to have an accountant or financial advisor assist you at the time of the divorce.