When a marriage is over and divorce proceedings have officially begun, there are a multitude of issues that a couple will need to address during the course of settlement discussions, including property division, spousal support, child custody and, of course, child support.
Here in Virginia, a parent ordered to pay child support as part of a divorce settlement must generally make payments until the child either reaches 19 years of age or graduates from high school, whichever of the two occurs first.
Interestingly, experts point out that there is another important issue concerning financial support for children that parents will also likely want to address during the course of their settlement negotiations: paying for college.
For many parents, the process of saving for their children's college tuition began well before their divorce via a financial instrument called a 529 plan account.
For those unfamiliar with a 529 plan account, the Securities and Exchange Commission defines it as a "tax-advantaged savings plan designed to encourage saving for future college costs." In general, 529 plan account owners (i.e., parents) can invest and even withdraw money from the account to cover both education costs and non-educational costs (with the latter subject to taxes).
Experts advise that in the event of a divorce, parents will want to address not only how they want to continuing saving for college expenses, but what they wish to do with the 529 plan account.
The two primary options for the 529 plan account include:
- Freezing the account -- This means that any money already in the account can only go toward a particular child's education and that no money can be added to the account. Experts indicate that while this strategy ensures the money is kept safe, it can also inhibit the growth of funds. Furthermore, it also leaves questions about who has control over investment strategies and what to do with the remainder of the funds unanswered.
- Splitting the account -- This means the couple agrees to divide the money in the existing 529 plan account into two new 529 plan accounts owned by each parent. This means that each parent is then free to manage the account as they see fit, including depositing and withdrawing funds, and investment strategies
The issues of child support and payment of college tuition can prove to be rather complicated and perhaps even overwhelming in the midst of a divorce. That's precisely why you should strongly consider speaking with an experienced attorney who can lay out your options, explain your rights and protect your interests.
The following post is provided for informational purposes only and not to be considered legal or financial advice.
Source: U.S. News & World Report, "Discuss college savings during divorce process," Reyna Gobel, April 29, 2013