Protecting Savings for Your Child’s College Education During Divorce
One question you might have while you are going through a divorce is what will happen to the money you’ve put away for your children in college savings accounts. You may wonder if those funds could be diverted to other purposes or if your kids will need to split the money with the children of your former partner’s new spouse.
Because it’s such an important issue, it’s important to address these questions in your divorce or separation agreement.
Where is the money stored?
Common examples of college savings accounts include 529 plans, Coverdell ESAs, Custodial 529s, Roth or traditional IRAs and certain types of U.S. savings bonds. Any assets held in a 529 plan, for example, are considered gifts, which means they would not be taxed. However, the flexibility of these accounts could make them more vulnerable. Each account has its own idiosyncrasies that could make it easier or harder to exploit.
What should be included in an agreement about these accounts?
Any agreement you create should include the types of withdrawals will be allowed in your agreement, along with the types of withdrawals you will specifically disallow. You might, for example, allow emergency withdrawals in dire financial situations, but expect there to be a 10 percent penalty attached. State tax benefits and their distribution, successor owners in the event of the death of the plan owner and who receives account statements are other matters to consider.
You should make every effort possible to safeguard your child’s college savings in a divorce. For further guidance, contact an experienced Suffolk County family law attorney with Bryan L. Salamone & Associates.