College Planning Concepts: 3 Things to Be Aware of When Divorcing

Divorce is a life-altering event that affects not only your family dynamics but also your financial plans, especially when it comes to your child's education. Navigating the complexities of college planning during and after divorce can be challenging, and by educating yourself on the dynamics, you can still make a meaningful contribution to your child’s college education. 

In this article, we discuss three considerations to navigate college planning during and after your divorce.

1. Managing 529 Plans

State-sponsored 529 plans are a popular option to save for a child's education. While the account balance is considered a child's asset and typically not subject to division in the marital estate, several important questions and considerations may arise during divorce, including:

• Account Management: Who will manage the 529 accounts after the divorce? Will it be one spouse or a joint effort?
• Decision Making: Who has the authority to decide when and how the funds will be used? Is it one spouse's sole decision, or will it require joint agreement?
• Unused Funds: What happens to the 529 plan funds if they are not fully utilized by the child? Can they be transferred to another sibling, or will they be withdrawn, possibly incurring penalties?

In most cases, both you and your ex-spouse will want to continue making contributions to a 529 and benefit from state income tax deductions (where applicable). Therefore, you will need separate accounts, each listing the child as a beneficiary.

2. Considering Financial Aid Implications

If your child intends to apply for financial aid, it’s important to understand the implications of divorce on the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service (CCS) profile.

While both the FAFSA and CSS Profile require financial information from parents, the FAFSA considers only the parent with the majority of overnights, while the CSS Profile evaluates need based on financial information from both parents. This is significant if there is a large income discrepancy between the parents because the less-financially-advantaged parent would typically qualify for a more compelling financial aid package. 

If you are concerned that your ex-spouse may be reluctant to provide financial information in the future, consider including agreements in your parenting plan stating that both parents will cooperate to the best of their abilities. Additionally, you’ll be required to provide financial information for the two years prior to the academic year you're applying for. For example, if you are applying for the Fall 2024 or Spring 2025 school year, you'd report financial details from 2022 onward. In the case of a new divorce, if you were married in the base year (2022, in this example) but are now divorced, you’ll need to disclose this change in circumstances in your financial aid applications.

Laws regarding divorced parents' obligations for their child's college education vary by state. In some states, like Colorado, including college contributions in your divorce agreements makes them legally binding. In other states, there may be legal requirements for parents to financially support their child's college education.

3. Being Aware of Timelines

When applying for financial aid through the FAFSA and CSS Profile, it's essential to be aware of specific timelines and information requirements, which are earlier than you might expect. The FAFSA and CSS Profile open for applications on October 1st for the following academic year. For instance, you would apply in October 2023 if your child plans to start school in the Fall of 2024 or Spring of 2025.

Navigating college planning during and after divorce requires careful consideration of these factors. Consider seeking legal and financial guidance to ensure you make the right decisions as they pertain to saving strategies, to benefit both you and your child's educational future. Rules and regulations do vary by state, so consult with professionals who are knowledgeable about the specific laws in your area to create a plan that suits your family's needs post-divorce. To learn more about how we can support these important decisions during your divorce, contact us for a free consultation.