A couple going through a divorce has a number of issues to deal with. If the couple has young children, one issue they will have to address is how to continue to save for the children’s college educations after the divorce. Experts point out that the time to address this issue is during the divorce proceedings, as the couple negotiates a property division settlement.
Many Colorado couples choose to save for college through a 529 plan – an investment account for college expenses that carries tax advantages. When the couple divorce, there are several options available. The parents may want to consider freezing the 529 account. Freezing the account would prevent one spouse from withdrawing funds for non-educational expenses, and would also prevent a former spouse from using the funds to pay college expenses for a child from a subsequent marriage. But freezing the account would also mean no more deposits could be made to the account.
Another option is to agree to continue to jointly fund the 529 plan. The disadvantage of this is that the couple may disagree about investment decisions. If that is likely to be a problem, the couple may choose to split the 529 plan into two separate accounts. Each parent would then have control over one-half of the assets from the original plan, and each parent would be able to make investment decisions with regard to their own half.
College savings plans are just one example of the complex property division issues that can arise in a divorce proceeding. Couples with a lot of assets or a complex financial situation should work hard to address these issues on an amicable basis if at all possible. If disputes arise, an experienced family law attorney can help a spouse negotiate a property division settlement that addresses the unique circumstances of that spouse and the needs of other family members.
Source: US News and World Report, “Discuss College Savings During Divorce Process,” Reyna Gobel, April 29, 2013