Planning for your child’s future is an important and exciting step for a parent. It is thrilling helping your child to grow and learn. Saving for their college education is part of what can help make sure that your child’s future is secure. College is expensive, especially if your child chooses to attend a private university or one out of state. You and spouse have likely worked for years to save money in a college account for your child to help defray these expenses. If your marriage falls apart and it is time for a divorce, all of your assets will need to be divided, including the college savings account. If your child is still a minor, it is important to understand how the divorce court will handle the division of the college account.
Like other assets acquired during marriage, the college account is a marital asset. This means that it belongs to both spouses and may be equitably divided. The manner of the division will depend greatly on how the college fund is held. If the funds are held in a simple savings or checking account, it will be simple to divide the funds in half and each parent may take half. Note that even though the parents may have previously agreed that those funds were specifically to be used to help pay for their child’s college, the parents are not under any legal obligation to use the money for college after the divorce is over, unless the parties come to an agreement to the contrary and that agreement is incorporated into the final divorce decree.
Instead of using a simple savings account, many parents elect instead to invest in a 529 account to help pay for their child’s college. A 529 account has very special tax benefits, making it easier for parents to save for college. With a 529, one parent is likely named as the account holder. This does not mean that the account is that parent’s separate property. However, forcing the account to be dissolved and distributing the funds is likely not the financial best route. The court may order that the account be awarded just to one parent, and the spouses, of course, may also agree to such an arrangement. However, without specific language in the order or agreement to the contrary, there is nothing stopping the parent awarded with the account from later dissolving the account and using the money how he or she sees fit. Parents need to be careful to make sure that there is specific language requiring the awarded parent to use the funds for the child’s education.
We know that protecting your child’s college education is essential. Contact us today at (320) 299-4249 for a consultation to talk about your child and how we can help.