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Protecting your child’s 529 college savings plan as you divorce

On Behalf of | Jul 24, 2024 | Asset Division |

Whether your child is still in elementary school or just got their driver’s license, you don’t want your divorce to disrupt their educational future. If part of your financial planning for their college education has involved setting up a 529 college savings plan, it’s important to ensure that the assets in this plan are not misused and that it can continue to grow, even if you and your spouse are going your separate ways.

However, you’ll need to be careful with these tax-advantaged plans. Because they typically are allowed to have only one account owner (with the child listed as the beneficiary), the parent who “owns” the account can potentially withdraw the money and use it as they choose if they need or just want to. There are tax consequences for not using it for one of its designated purposes – such as educational and vocational training expenses, but it can be done.

Even if the parent who owns the account doesn’t make withdrawals (distributions), they have the right to change the beneficiary. That means that if your spouse owns your child’s account, they could remove your child’s name and make a future stepchild the beneficiary, for example. Only one beneficiary can be listed on an account at a time.

What are your options?

If you’re not the owner of the account, you can seek to include some provisions in your divorce agreement to help you keep some control over it. For example, you can require that:

  • You have access to all account statements.
  • No distributions can be made without your written consent.
  • No assets in the account can be used for any child other than yours and your co-parent’s.

In addition to putting these safeguards in place for the money you’ve already saved for your child’s future, which should continue to grow, you can also open a 529 plan on your own. A child can be the beneficiary of multiple plans. As part of your child support or asset division order, you could potentially designate that your co-parent must contribute a designated amount to that plan. Note that every state has one or more 529 plan options, so even if you move to another state, you can open one there.

The important thing is protecting your child’s future. This scenarios is just one example of why it’s wise to have your own financial and tax advisors, in addition to experienced legal guidance, as you work to end your marriage.