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.
College savings plans begin with the best intentions. When couples divorce, however, the two sides may have different opinions about the money that was saved. We can provide sound advice about challenging issues arising from divorce. When issues bring you to family court for resolution, we can help you obtain the best results.
To learn more about your legal options regarding divorce and child custody, call us today at 856-751-5505 or contact us online. With locations in Somers Point and Marlton, New Jersey, we are pleased to represent clients throughout Camden County, Burlington County, Atlantic County, and South Jersey.