Within the hustle and bustle of divorce, people sometimes fail consider their children’s future educational needs. While it might not be at the forefront of divorce issues, it is certainly something that dissolving couples should consider.
If you want to save for your children’s higher education, you probably need to communicate this desire with your former spouse at some point in the future. However, if you setup some guidelines and discuss this issue within your divorce settlement, it will make your future financial conversations much easier.
Educating your children: a 529 plan account
To address future financial needs for education, a splitting couple could discuss the possibility of freezing a current 529 plan account. This is a tax-advantaged investment account, which is used for upper level education. Couples might consider splitting 529 plan accounts and deciding what proportion each parent will contribute toward their children’s education.
When a 529 plan account is frozen, this means no more deposits are made to the account. The money already in the account can only be used toward education for a particular child. Ordinarily, an account owner could deduct funds from the account at any time for any non-educational reason and pay a tax penalty; however, a frozen account would prevent divorced parties from doing so. If frozen, the account would be off limits. Limiting access to the account would prevent a parent from using funds, thus creating guaranteed savings for a child’s education.
It is important to note, however, that even when this type of account is frozen, there are still investment options. To prevent dominion and control over investments by the owner of the account, a judge could split the 529 plan equally. This would create a new account with 50 percent of the assets of the original account. Therefore, each spouse would be responsible for investment decisions in his or her respective account. Ultimately, the money of both accounts could be used for educational expenses.
Even when a relationship cannot survive, when children are in the mix, settlement discussions will have to contemplate the kids’ futures. By addressing particular concerns in the divorce settlement, former partners can make future discussions easier. The collaborative process will benefit children of the dissolved marriage.
If you would like to learn more about what is important in divorce settlement discussions, speak to a qualified divorce attorney in your area. An experienced family law lawyer can help guide you through the complex legal process.
