Protecting College Funds From Divorce

Many parents have college funds set up for their children where they contribute money each month to head off the overwhelming costs of college when the day comes. But you may wonder what happens to a college fund upon divorce. Can your spouse cash out your child’s plan early without your consent?

College savings plans are commonly called 529 plans based on the provision of the IRS tax code that gives them their tax savings advantages. These plans allow parents to save for college or prepay tuition.  The main advantage of the plans is that they allow money to grow tax-free, and as long as the money is used for educational expenses, the money is not taxable when it is withdrawn.

529 plans are assets of the marriage just like any other financial account, so they need to be planned for as part of a divorce.  Here are some options to protect the accounts:

Split the accounts — Most 529 accounts have only one owner, so if the account is in your spouse’s name, you won’t want to be funding it after the divorce.  Instead, you can administratively divide up the account into two accounts and give each parent control over a portion of the assets.

Specify uses for the funds — Include clear language in your divorce settlement stating that the funds can be used only for college expenses.  That way, if your ex-spouse is using the money for other things, you can have the decree enforced in court.

Request interested party statements — Include language in your divorce settlement allowing you to keep tabs on the 529 accounts held in your ex-spouse’s name.  You can request interested party statements from the financial institution to make sure the proper contributions are being made and that money is not wrongfully being pulled out.

Name successor owners — The other parent should probably be named if something were to happen to the owner of the account.  However, if you feel your ex-spouse can’t be trusted, you can name another trusted person.

Be clear on future funding requirements — Include language detailing what each spouse’s future contribution requirements are.

The best way to ensure that your spouse can’t run off with the 529 funds is to plan for it during your divorce with the assistance of your experienced Williamson County divorce lawyer.