When you and your spouse set up a 529 College Savings Plan, you probably thought it would be a great way to help your child handle expensive college costs.
After all, the tax-deferred savings plan would help take some of the financial pressure off you—and your child—when it came time for her to go to college. Your child could focus on studying instead of worrying where the money would come from for next semester’s tuition.
Unfortunately, you were not able to foresee a divorce that could potentially affect contributions to the 529 savings plan.
If you are facing a divorce, it’s time for you and your spouse to make decisions about the plan.
How a 529 Plan Factors into a Divorce
A 529 plan is a marital asset. So, the college savings account can be listed along with other marital property for decision-making considerations during the divorce process.
Unlike a marital home that may have both spouses’ names on the deed, a 529 savings plan has only one name on the account. Couples, then, must decide how to handle the account after the divorce. This may raise such questions as:
- If your name is not on the account, do you trust your spouse to maintain the fund for its designated purpose—to pay your child’s tuition?
- Are you concerned your spouse may empty the account to pay for bills, buy a car, or even pay for the divorce?
These and other questions should be settled before you finalize your divorce. We also advise you to talk to your divorce lawyer first before making any decisions about the fund.
Note: You may be subject to taxes if you or your spouse decide to withdraw any money from your 529 Plan before . We suggest discussing your plan with a financial advisor to ensure you do not end up paying any unnecessary taxes.
If you have a 529 College Savings Plan and are going through a divorce, the attorneys at Shapiro Family Law can help you with your concerns. To learn more, call today to speak with a member of our team: 303-695-0200.
529 Plan Options for a Divorcing Couple
You have a few options when it comes to your 529 College Savings Plan. A divorce attorney can help you decide which option is right for you and your child and take the necessary steps.
Let the Account Remain as Is
It is possible to leave the plan as it is and not divide the money in the divorce. With the assistance of your attorneys, you and your spouse can specify in your divorce decree that:
- Money cannot be withdrawn from the account except to pay for educational expenses.
- Each spouse must agree in writing to a withdrawal for noneducational purposes.
The specifications could also include what the spouses agree to do when taxes and penalties are applied to noneducational fund withdrawals.
The spouse whose name is not on the 529 plan can monitor the account by asking for “interested party statements.” An interested party statement documents contributions and withdrawals from the account.
Divide the 529 Plan Between Both Spouses
A 529 plan can also be divided into two separate accounts. By splitting the 529 plan, both spouses can have their names on their own individual plan and continue making contributions.
So, if your former spouse chooses to withdraw his money, you still have funds in your plan for your child’s education.
A 529 Savings Plan is an Investment
A 529 Savings Plan must be included along with other marital property and assets in the negotiations between you, your spouse, and your respective lawyers.
After all, the savings account is not only a financial investment you and your spouse have made over the years, but also an investment in your child’s future. So, it is important for you to protect this asset during the divorce process.
Shapiro Family Law Can Help During Your Divorce
At Shapiro Family Law, we help individuals going through divorce to resolve complex financial issues and other family matters. We serve clients throughout the Colorado area.
If you are considering a divorce or legal separation, or you are going through a divorce without legal representation, contact Shapiro Family Law today to see how a property division lawyer can help you: 303-695-0200.