My Spouse Just Took our Children’s College Accounts; Can He Do That?
There are a lot of financial considerations to take into account when going through the divorce process. Among these is what will happen to your college savings accounts you have set up for your children. This is a lot of money, and it is unfortunately not uncommon for one spouse to attempt to co-opt those savings for their own uses.
The most common types of college savings accounts include 529 savings plans and Coverdell ESAs (education savings accounts), which are similar to a 529.
Cover college savings in your agreements
Any money held in a 529 is considered a completed gift, which is outside of the owner’s taxable estate. This is a highly flexible savings account that can be an easy target for a spouse with ill intent to withdraw assets or revoke the account entirely, so it is crucial to specific in a separation agreement and divorce decree that no matter who is listed as the account owner, the funds are only to be used for the beneficiary.
Divorce and separation agreements can also include information about qualified and non-qualified withdrawals. Which type of withdrawals will and will not be allowed on the account? In addition, there are some circumstances in which non-qualified withdrawals may be warranted. If there is an emergency scenario or times of financial stress, it might make sense to withdraw from college savings rather than retirement plans, considering the potential tax implications. You may consider defining what exactly should be considered an “emergency” for this purpose.
Finally, if one of you owns the account, the other should still be listed as an interested party and receive duplicate statements in the mail or electronically. If the account benefits your children, you both should be provided the same information, even if only one of you actually controls the account.
For more information about dealing with college savings accounts in divorce, contact an experienced divorce lawyer at Bryan L. Salamone & Associates.