Handling Your Child’s College Expenses When You Divorce
Many couples start saving for their child’s college education during their marriage. Unfortunately, however, about half of all marriages will end in divorce. When a divorce occurs, one issue to determine is how to divide, maintain, or continue to fund existing 529 college savings accounts, which parent will benefit most from available tax deductions, and how financial aid will be handled for the child.
Ownership of Existing 529 Plans
Once a couple divorces, only one parent can maintain ownership of an existing 529 plan, although the other parent can and should remain as the successor owner of the plan, in the event that the other parent passes away. Parents must either come to an agreement about who will assume control over the plan or have the court make a decision. Strategically, one certified financial planner recommends that ownership of the plan go to the noncustodial parent. In many cases, he points out, the father, who often is the noncustodial parent, has a greater income than the custodial parent. In qualifying for financial aid for college, only the custodial parent’s income and assets are taken into account. Therefore, the 529 plan would not count as an asset for the purposes of determining financial aid eligibility. Additionally, the parent with the lower income will qualify for more financial aid for the child. While this strategy will not work in all cases, it is financially advantageous for some families.
Claiming the Child as a Dependent for Income Tax Purposes
If an adult child is a full-time student, as defined by his or her college policies, one parent may have the right to claim the child on his or her federal and state income taxes. Entitlement to claim the child as a dependent must be resolved in the parties’ divorce. Parent should keep in mind that the ability to claim the child as a dependent also entitles him or her to any college credits offered by the IRS during that particular tax year. Therefore, it may be more advantageous for the parent with the lower income to claim the child so as to qualify for college-related tax credits. Otherwise, the higher-earning parent may not qualify for these credits.
Timesharing of Your Child
While it may seem unimportant to determine the custody of a college-age child, it has a significant impact on financial aid eligibility. Only the income and assets of the custodial parent are used to determine eligibility for financial aid through the FAFSA, along with his or her current spouse if remarried. The noncustodial parent’s finances, however, have no impact on financial aid at all, unless the college requests additional financial information from both parents. In this case, it could have significant effects on the available financial aid package.
Consult an Experienced Florida Divorce Attorney Today
In contested divorce cases, the stakes can be very high, and one such issue relates to the funding of your child’s college education. Due to the potential complexity of the issues involved, which depend heavily on your individual financial situation, it is always wise to contact a Florida divorce lawyer who can advise you of your options and help you to develop the strategy that is best in your case. Contact Vanessa L. Prieto Law Offices, LLC in Fort Lauderdale and learn how we can help you work through college education funding issues and all other matters related to your divorce.