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Divorce and college savings plans

On Behalf of | Sep 20, 2016 | Firm News

Although most Texas couples who are planning to tie the knot consider the commitment to be a long-term matter, divorce rates reflect the reality of how many marriages come to an end. When that happens, family finances can suffer dramatically, especially if the estranged spouses choose to litigate the matter. In addition to dealing with decisions made by the court, spouses must satisfy their financial obligations to their attorneys. A college savings account could be eyed as a source of funds for managing life expenses or for avoiding the need to dip into another type of account.

Many types of college savings plans can be revamped for use by another beneficiary. In selecting a plan that can’t be changed, it may pay to opt for a custodial 529 plan. The beneficiary cannot be changed, which means that the intended child should receive the funds, which are considered a completed gift at the time the account is funded.

A regular 529 plan might be a better choice for a family with more than one child as one of them might choose not to go to college. The ability to change beneficiaries makes it possible to divert funds to another child in such a situation. However, this type of account could also potentially go to a new spouse or the offspring of a new spouse.

During a collaborative law divorce, parents might make decisions about how 529 plans or ESAs will be handled going forward. However, it is crucial that these terms be formalized with a written agreement that can be enforced. A settlement that is not enforceable could leave an individual dealing with non-compliance in issues such as financial and parenting matters.

It is important to have a good understanding of financial standing at the end of a marriage. An individual who is facing a divorce that was not expected might want to begin by gathering information about banking, credit accounts, and assets to go over with a lawyer.