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College Savings and Divorce in Texas

To get a divorce in Texas and not have some language contained in your Final Decree of Divorce that takes into consideration the need to prepare and save for your child’s college education would be a huge mistake. The failure to plan for college means that you should prepare to fail in regard to your child’s college savings. Prepare to save or prepare to tap into retirement funds that you had previously had earmarked for your own use. The other factor to consider is that if you remarry, your new spouse’s income may become a consideration in any subsequent legal battle between you and your ex-spouse in regard to your child’s college savings.

What kind of programs are out there to help you save for your child’s college education?

The federal government offers loans, grants and scholarships of their own to have facilitate your child’s education. Private entities offer scholarships in varying amounts. It is up to you and your child to seek out the source of these scholarships and apply for them. As with any government program there is risk that the source of the money could dry up over time. Banking on the availability of student loans in the future may not be a smart move depending how far into the future your child’s college career will be starting.

College Savings Plans

Texas (like many other states) offers a college savings plan for parents and families of students known as a “529” account. A previously created 529 account can be divided up in a divorce and the assets split between you and your spouse in any way you see fit. Those funds can you are entitled to in the divorce can be rolled into a new 529 account without incurring any taxes or penalties. As it pertains to your final decree of divorce it is worthwhile to specifically state that these funds must be used for your child’s education and not for any other purpose.

The biggest benefit that I can conceive of as it pertains to a 529 college savings plan is that the money invested into the plan grows tax free. The reason that it does is that the principal amounts are taxed as earned income as you go along. As long as you use the money in the 529 for college savings you will not pay tax at all on the growth within the account. Unlike the rules for IRAs, there are no artificial income limits for being able to take advantage of this tax free bonanza.

The State of Texas has multiple plans available to families with children who are planning on attending college. You can do some research and see which plan suits you and your circumstances the best. From my vantage point, a prepaid college savings plan basically ensures that you are not affected by inflation and the increase in the costs of college. It is said that you can assume the cost of attending college will increase by 7% per year. The other main type of 529 in Texas allows you to invest the money into mutual funds that have more variance in terms of growth and loss in value. You can determine which you prefer based in large part on your individual risk tolerance.

How your kids and money concerns will weigh on your divorce priorities

The two most important aspects of any divorce are your children and your money. If you don’t have one or the other you divorce may be somewhat easier to digest. If you happen to have both then you are in for a full fledged divorce experience. Preparation, like in most areas of your life, is key if you want to escape from your divorce with a strong relationship to your children and a firm grasp of the money that is rightfully yours.

From the perspective of your children, you should not inundate them with information that is beyond what their capabilities are in terms of processing that information. A younger child will not be able to understand as much as an older child when it comes to the circumstances of your divorce. Even as it pertains to your older children, they may not (and probably should not) want to know all that much about your divorce.

Your first instincts as a parent are likely to want to protect and shield your children from the ill effects of your divorce. You know the individual coping skills of each of your children when it comes to handling adversity. Bear all these circumstances in mind before making a decision to talk to your child above your divorce. If at all possible, when you do speak to your children, do so with your spouse. A united front in this regard can show your children that you both still care about them and that the support system that you offer them is still in place even if your marriage will not be.

As we have been discussing money concerns in your divorce for the better part of a week, we have not reached the point where your money and your children intersect. Any parent can tell you that having a child costs money- now and in the future. You plan for your own life but you are likely thinking more about your child and what their life will be like once the divorce is complete.

Depending on what your position is on how to talk to your child about money you may have a relatively easy time discussing the effect of divorce on your family finances with your child, or you may struggle to do so. Many parents that I have worked for have simply declined to discuss the issue with their children at all. Ultimately it is your decision as a parent to determine what level of conversation with your child is appropriate when it comes to money.

From where I sit, however, I would offer to you that deciding against talking to your children altogether about the financial impact of divorce on your family is a wasted opportunity. If you and your spouse have determined that a divorce is the only option for your family, failing to discuss the ramifications of that divorce with your children can be seen as a missed opportunity to teach them life skills and maturity.

How your child reacts to your divorce depends in large part on their age

Younger children consider the divorce more from their own perspective. Will they still be able to play soccer? Will they be able to attend the same school? That sort of thing. The thought of their mom and dad not living together anymore tends to hit them more than in older children.

Children between the ages of 10 and 13 tend to have more advanced questions and concerns- notably about their own role in the divorce. This is the age group where I have noticed kids blame themselves more often than any other. You as a parent will obviously have to take the lead and assure your pre-teen that he or she had nothing to do with the divorce.

Older children run the gamut of reactions. From the positive side of things, teenagers can take the lead on doing more around the house. Whether it is caring for a younger child if you have to work late or filling in for you around the house when it comes time to do some weekend cleaning, teenagers can be amazingly resilient. On the other hand, teenagers can check out completely in some instances if they feel like their parents are checking on one another and their family. You obviously know your family better than I do so it is up to you to take the necessary steps to ensure that conversations with your children about your divorce are fruitful.

Helping your kids handle your divorce from a financial vantage point- tomorrow’s blog post topic

If you are interested in how the subjects of money and your children are related please come back to our blog tomorrow to read about this subject. Your children will need your help to understand how your divorce will impact you and your family financially. We will do our best to share some advice we have gathered from our experience representing many, many families across southeast Texas in divorce cases.

Any questions you may have in regard to family law in Texas can be addressed to the attorneys with the Law Office of Bryan Fagan, PLLC. We offer free of charge consultations with licensed family law attorneys six days a week.

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