Plans change when you go through a divorce. If you were attempting to plan for the college education of your children and then were served with divorce papers from your spouse, the course of action that you had selected for doing so probably was altered. This is not uncommon to go through because of a divorce. However, the nature of those changing plans when it comes to the life of your child moving forward can be a lot to take on. While you want to do whatever you can to ensure your child can attend a college or university there can be limitations on college savings when your household income is reduced as the result of a divorce.
This situation gets many parents to think more about what it means to go through a divorce and save for college simultaneously. There is a range of considerations that you may need to make regarding doing so. An initial concern is that you may have been simply paying for the divorce in terms of court costs, filing fees, and hiring a divorce attorney. For many of us, these costs would greatly impede our ability to continue to save for college expenses throughout the case. A divorce can upend your household budget a significant amount.
One of the impacts of a divorce that catch many people by surprise is that the divorce will reduce by some degree your household income. This could be through losing the income of your spouse, having to incur additional expenses to compensate for the lack of childcare/cleaning services provided by a spouse, or seeing a reduction in your work hours because of your needing to attend to matters related to your case.
Depending upon the age of your child this pausing of the college savings contributions can be a big deal. For your older children, you may be trying to contribute to a 529 account or other tax beneficial account as much as you possibly can to make up for the lost time when it comes to saving for college. Every family reading this blog post is at a different point in their lives as far as the ages of children, proximity to college, goals for savings, and their income. You may even be working with a financial coach to help you identify appropriate goals for you and your family.
Completing the Free Application for Federal Student Aid (FAFSA) is one of the first steps that many families take when it comes to beginning the process of exploring how to pay for college. Whichever parent, you, or your ex-spouse, who is named as the custodial parent in your divorce will be responsible for completing the FAFSA with your child. How can you say that you are the custodial parent of your child? Besides reviewing the language in your final decree of divorce (which is the best way to determine this) there are two good ways to make this determination: 1) it will be the parent with whom your child has been living for the most part over the prior year, and 2) if your child has been spending an equal amount of time both with you and your ex-spouse then the custodial parent is the one who pays child support.
A key point to this discussion is whether a 529 account is being maintained and contributed to on behalf of your child. A 529 is a tax-free method of saving for college, high school, or even primary school. The State of Texas offers 529 accounts which allow you to select from a limited range of investment types based on your risk tolerance, personal financial situation, savings goals, and the age of your child.
If you have a 529 in your child’s name and are the custodial parent, then you must declare this savings on the FAFSA paperwork. This will impact the availability of financial aid being offered to your child. However, if you are the noncustodial parent of your child and have a 529 then you do not need to disclose the 529 accounts on the FAFSA application. Need-based financial support will not be extended to your child as fully, however, in either situation. These would be Pell Grants and other need-based financial assistance that would otherwise be offered to your child based on your income, assets, and other criteria.
A real-world example of how college savings may work in a post-divorce situation
Let’s suppose that your child has a 529 account with $40,000 saved within it. That $40,000 was completely spent during the first two years of your child’s four-year degree program. If you all would need to re-apply for financial aid through the FAFSA system, then the availability of potential aid. You can talk with your experienced family law attorney to determine what is best for your family as far as which parent owns the 529 plan. You can contact the administrator for the 529 to determine how to transfer ownership of the plan if that is something that you and your ex-spouse or spouse are interested in.
Protecting money going to a college fund
One of the major concerns that some people have regarding paying for college after a divorce is being able to trust that the money being sent from one parent to the other goes towards college expenses. Suppose that you are the noncustodial parent of a child who is planning on attending college. As part of your divorce decree, you agreed to contribute a certain amount of money each month towards the college tuition and expenses. There is nothing wrong with doing this, but you may have understandable concerns about making sure the money goes towards college savings rather than towards other bills or obligations of your ex-spouse. I wouldn’t assume that your ex-spouse would use this money to go on shopping trips, but it would be reasonable to think that the money could be used to pay for household expenses.
In that case, you should work to protect how the money is allocated once it leaves your hand. This could be done by setting up a trust for the money to go into. That trust could name a financial institution or another person as a trustee. Investments could be selected for the money to go into. The trust would be set up according to the terms of the agreement contained in your final decree of divorce. This way your child could receive the benefit of the college fund while you receive peace of mind that the money is being allocated well.
Before you agree to anything in your divorce as far as college payments are concerned you should work on confirming with a financial professional or planner that you can do this in a way that makes sense for your budget. It would be a mistake for you to commit to paying money for something years from now when you cannot afford to meet the obligations of your four walls. Child support, spousal support, and your household bills are immediate concerns. Ensure that you can afford to make the payments that you are committing yourself to.
Next, you should be as specific as you can be in terms of having a plan for your child's college savings and expenses. The trouble with this, depending upon the child's age, is that plans change. Life changes. Just in the past two years, we have seen higher education turn on its head in terms of college campuses being shut down due to COVID. Classes went from in-person to online very quickly. In most cases, the costs associated with college did not see much reduction. This alone may cause you to consider what you want and what your child wants as far as their future educational plans are concerned.
If your child is older then you may want to sit down with him or her to discuss what their thoughts are as far as college is concerned and what your expectations are as far as what college will cost and what you are willing to endure as far as savings are concerned. We all know that college costs have exploded in recent years. Depending on the school your child chooses then you may need to talk with your child about the importance of school choice. Public schools tend to be much less expensive compared to private schools especially if your child chooses an in-state university in Texas.
Helping your child look for financial aid before they even reach high school is another opportunity for you to show an interest in your child and reduce the costs of college. Many scholarship opportunities exist for children who are younger than high school-aged. From my experience, both personally and knowing people who have gone through this process, most people begin to look at scholarships late in their high school careers. This is not a great way to go about this process. You can help your child be intentional about their search for financial help early in their lives rather than waiting until the last minute.
What about child support for children over the age of 18?
Most of the time, your obligation to pay child support ends when your child turns 18 or graduates from high school, whichever occurs later. There are exceptions to this rule, however. For instance, if your child is disabled then you may agree or be ordered to pay child support beyond the 18th birthday. Additionally, Section 154.123(9) of the Texas Family Code puts a family court judge in a position where he or she can consider the expenses for a son or daughter for education beyond secondary school in issuing orders in a divorce.
If you are a parent who expects to receive child support in a divorce, then this Texas Family Code provision allows you to think ahead and be proactive about how you negotiate your divorce or how your present evidence and arguments in a divorce trial. This opportunity would be for you to ask for child support after your child graduates from high school. For example- you could ask a court to have additional child support be ordered so that you may set that money aside to pay for college. You may need to verify on an annual basis that the money is being set aside so that your ex-spouse can see that the money is not being misspent.
If your co-parent violates the court orders, then you are in a position where you may need to file an enforcement petition. An enforcement action allows you to specific instances where the divorce decree was violated. You can include potential forms of "punishment" in your divorce decree if your ex-spouse violates their obligation to pay post-divorce child support.
What are other ways to divide college costs?
Being in a high net worth divorce or even a divorce where college costs are a major factor because of the number of children that you have then you need to think long and hard about how you want to proceed in a divorce. Not focusing on the long-term prognosis for college is a major mistake. Developing a strategy for your case is a great decision to make and can be done with an experienced family law attorney, such as those with the Law Office of Bryan Fagan.
One of the benefits of working with one of our attorneys is that we can help you to create solutions to problems like this involving college costs. Having the benefit of sitting down with someone who has helped many people in your position can provide you with a great deal of perspective that you otherwise may not have had. Do not solely rely upon what you read on the internet or hear about from friends or neighbors. Consult with one of our attorneys before you make any decisions to move forward with a divorce involving these types of issues.
For example, you may want to go ahead and specify how any costs over and above savings for college will be divided between you and your spouse. Depending upon your age, income levels, education, and other factors you can choose to split them 50/50 like you would medical costs not covered by insurance. Defining how college expenses are termed is also important. Do you count things like spending money, books, housing, etc. all included in college costs? Will your child live at home while going to school? Think through these issues now rather than kicking yourself for not having done so before the case was over.
Uniform Transfer to Minors Act
In terms of other avenues to saving for college are concerned an account through the Uniform Transfer to Minors Act stands as another option for you to consider with your child, spouse, and financial planner. This is a simple method families use with regularity to save for college expenses. The account is opened in the name of your child and you or your ex-spouse could act as trustees of the account until your child reaches adulthood. You can work with an experienced financial planner to learn more about how you may use this type of account to pay for college expenses. Please note that this account is not limited to use only for educational expenses. For example, if you need the money to pay for an apartment for your child, gas, clothing, or any other aspects of their life at this time then a uniform transfer to a minor's account can be quite useful.
Some downsides to these UTMA accounts are that the account would belong to the child and is not enforceable as a part of your divorce decree. This is a major risk to your child and you that you need to consider. The funds in this account would be a gift to your child once they are contributed and the trustee of the account must make sure that these funds are invested correctly and that accounting is done for the parents and child annually in most cases. You as a parent may like the idea of someone else handling the funds on your child's behalf. On the other hand, if you like control then a UTMA may not be something that you like. The 529, on the other hand, maybe more in your sweet spot as far as treatment.
Above all else, you need to learn as much as you can about post-divorce college savings as early as possible. Understanding the differences between the types of accounts and methods of savings is crucial to your child's success, the success of your family, and your peace of mind. Speaking with one of the attorneys with the Law Office of Bryan Fagan is the best place to start this process.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys are available six days a week in person, over the phone, and via video to answer questions in free of charge consultations. These consultations are a great way for you to learn more about the world of Texas family law as well as how your family's circumstances may be impacted by the filing of a divorce or child custody case.