As a divorce financial planner and certified divorce financial analyst (CDFA), this is a busy time for me. I often meet with individuals or couples who decide to end their marriages when either their first or last child goes away to college. For years the spouses had stayed in unfulfilling marriages “for the kids.”
The cost of college is staggering. Dealing with college financing issues while married can be difficult. But navigating the financial waters when divorce is on the horizon can be brutal if you are uninformed about important issues.
These are four issues I recommend my clients understand and address in their divorce settlement.
In some states, child support ends when a child turns 18. In others, it ends at 21. The majority of states use 18 as the “age of majority.” Some states permit child support to continue beyond the age of 18 in certain circumstances, such as if the child is still living at home and attending high school, or if the child has special needs. Because the age of majority varies from state to state, it is important to check the laws of your particular state to see which age applies, and whether there are circumstances that would extend child support.
In some states, courts have the power to award college support in addition to child support, or after child support ends. However, in most states, neither parent is obligated to provide financial support to their children to attend college, vocational school, or other post-secondary education. That is why it is important when negotiating your divorce settlement you include an agreement that addresses college support in addition to child support.
Do not make the mistake of relying on a verbal agreement to contribute to a child’s college fund or assuming that you and your ex-spouse will “figure it out” when the time comes. You should include specific language in your separation or settlement agreement regarding college financing.
An agreement between divorcing spouses should specify who is responsible for which college expenses, how many semesters of support will be provided, any limits on annual payments, and any restrictions on colleges the child may attend. For example, it could be specified that the non-custodial parent will provide 50% of the tuition at a state college or a private university where the child enrolls, whichever is less. The agreement should also specify how transportation, health insurance, and room and board will be paid for. Will money be paid directly to the school, to the custodial parent, or to the child?
Laura McGee, who is a popular mediator and divorce coach in Southern California, likes to remind her clients to consider how to pay for the children’s living expenses during holidays and breaks. When your college athlete comes home for the summer you can expect your grocery bill to double or even triple!
An agreement between divorcing spouses should specify who is responsible for which college expenses, how many semesters of support will be provided, any limits on annual payments, and any restrictions on colleges the child may attend.
The custodial parent is responsible for filling out the Free Application for Federal Student Aid (FAFSA). The custodial parent for federal student aid purposes is the parent with whom the student lived the most during the past 12 months. This may or may not be the same as the parent who has legal custody. Generally, child support and/or alimony received from the non-custodial parent must be included on the FAFSA.
If the custodial parent gets remarried, the new spouse’s income and assets must be included on the FASFA as well. I know this from personal experience. When my step-daughter applied for college, I was married to her father who was the custodial parent. Although he and I had a prenuptial agreement, I was still required to include information about my income and assets on the FASFA. This limited my step-daughter’s ability to qualify for financial aid.
The non-custodial parent is not required to submit information for the FAFSA. This parent can still contribute to college costs, but their income and assets won’t be included in calculating the Expected Family Contribution. However, many private colleges do consider the non-custodial parent as a potential source of support, and require a supplemental financial aid form from the non-custodial parent. This affects the awarding of the school’s own aid, but not federal and state aid.
As a financial advisor, I often encourage my clients to start funding a 529 college savings plan soon after their child is born. Small monthly contributions invested over 18 years can really add up! In order to increase the chances a child might receive financial aid, the custodial parent should own the 529 plan. If, however, the non-custodial parent owns the plan, in most cases, ownership can be transferred tax-free to the custodial parent.
Unfortunately, even though taxes and penalties are incurred, I have seen on more than one occasion a 529 plan owner raid the account and use some or all of the money for purposes other than the child’s college education. Regardless of who is listed as the account owner, it is important to specify in the separation or settlement agreement for what purposes the 529 funds may or may not be used.
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