How Divorce Could Affect Your Child’s 529 College Savings Account

 Posted on October 10, 2018 in High Asset Divorce

Many parents make an effort to diligently put away money in a 529 college savings account each month for their children’s higher education. However, these accounts, like any other asset, are divisible upon divorce, which means that they could be put in jeopardy, so if you have a college savings account for your child and have questions about its fate in the event of divorce, you should strongly consider contacting an experienced high asset divorce attorney who can help ensure that your child’s future is protected.

What Are 529 Savings Plans?

Also known as qualified tuition plans, 529 savings plans are tax-advantaged plans that are sponsored by the state and that help families save for future education costs. There are two main types of 529 plans: prepaid tuition plans and education savings plans. The former allows account holders to purchase credits or units at specific colleges and universities to cover future tuition and fees for a beneficiary at current prices. Education savings plans, on the other hand, allow account holders to save for a beneficiary’s tuition and mandatory fees, but also room and board. Funds from these types of accounts can be used at any college or university.

College Savings and Divorce

While a couple may have invested in a 529 college savings plan for their children, those assets are still considered to be marital property until the beneficiary actually enters college. This means that the contents of a college savings plan are eligible for distribution between two spouses upon divorce. While both parties could theoretically continue to place funds in the account after the divorce is finalized before turning it over to their children, this isn’t a guarantee, as some spouses value higher education more than others. In some cases, an account holder could remarry and have more children, at which point, he or she may want to use some of the funds in the account for those beneficiaries as well.

Fortunately, there are steps that parents can take to ensure that the original beneficiaries of their 529 accounts are able to collect upon graduating from high school. For instance, some couples choose to funnel these assets into a trust account that the child can then access when he or she turns 18 years old. Unfortunately, before this can happen, the account itself must be liquidated, which means that both tax and withdrawal penalties will apply. To avoid penalties, the parents can choose to put the account in only one of their names, usually the custodial parent. Although both parents can continue to contribute to the account after divorce, control over the contents themselves will remain with one of the parties until the child comes of age.

Call Our Round Rock Legal Team Today for Assistance

For help ensuring that your own child’s college savings account is not jeopardized during divorce, please call 512-610-6199 to consult with one of the Round Rock high asset divorce lawyers at Powers and Kerr, PLLC today. We are eager to assist you with your case.

Sources:

https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html

https://www.usnews.com/education/best-colleges/paying-for-college/articles/2015/08/19/3-important-college-funding-questions-to-answer-during-a-divorce