Divorce and Your Child’s 529 College Savings Plan
You’ve diligently socked money away for your children’s 529 college savings plans, and now you’re getting a divorce. Divorce is always difficult and unpredictable, but hey, you got one thing right—your kid’s college education funding is secure. Unfortunately, it doesn’t quite work that way, and it’s important to give those 529 college savings plans a closer look.
Your Kids’ Plans
Yes, you purchased the 529 plans for your children, but they remain your marital assets until they pass to your children (upon entering college). In a Texas divorce, community property laws dictate that any property you and your spouse acquired during the marriage belongs to both of you equally. Upon divorce, that property must be divided fairly and justly. A 529 savings plan is subject to the same divorce division calculation that any investment portfolio or bank account would be.
You may be thinking—that’s okay because they’re our kids and the 529 plans are theirs; we’ll each keep the savings plans going until the kids are ready for college. Divorce has a funny way of making people act rashly and sometimes people act out of spite, pain, and revenge. Not every parent values a college education to the same degree, and situations change. It’s naïve to believe that your kids’ 529 plans are necessarily sacrosanct. If your spouse remarries and has more children, for example, plans can change. It sounds callous, but it happens.
You naturally want to protect your children’s college savings plans, and there are options—that come with their own complications. You need skilled legal counsel to help ensure that you protect your children’s assets while minimizing penalties and taxation.
One option is to funnel the 529 assets into a trust or gift account that your child can access when he or she turns 18. The problem with this approach is that the 529 must be liquidated, in effect, before it can be redistributed—and tax and withdrawal penalties apply. Your dedicated divorce attorney will help you assess the benefits and detriments of this option for you.
Avoiding Tax Penalties
You can avoid taxes and penalties by keeping the 529 plans under your name, as the custodial parent. If the plan is already in your ex’s name (it can only be in one parent’s name, though both of you can continue to contribute), you may want to consider transferring ownership to your name. While you may believe that the 529 savings plans are naturally going to go to your children when they enter college and that there’s no reason to waste time thinking about it further, divorce has a way of making even the most solid plans go south. Talk to your Texas divorce attorney.
Consult an Experienced Richmond, Texas, Divorce Lawyer About Your Children’s 529 College Savings Plans
If you’re divorcing, your children are naturally your top priority—and their education is paramount. Attorney Frank J. Vendt at The Vendt Law Firm, P.L.L.C., in Richmond, Texas, understands your commitment to what’s best for your children, and he has the experience, skill, and determination to fight for your case’s best possible resolution. To schedule a consultation with Mr. Vendt, please contact or call our office at (832) 276-9474 today.