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What happens to college savings during a divorce?

California couples facing a divorce have many important financial matters to consider. If they have children, determining what will happen to the money in college savings accounts is one of them. A question as to what happens if a former spouse has additional children in the future can arise, as is will the money in the college savings accounts only go to children from their first marriage.

These types of scenarios should be addressed in a settlement agreement that outlines the way assets will be divided between divorcing spouses. Examples of categories covered in such an agreement include property, retirement accounts, alimony, child custody, visitation, and child support.

According to experts, there are two major considerations to keep in mind when determining what happens to college savings accounts. First, couples need to think about where the money is saved. Possible accounts include 529 savings plans, Coverdell ESAs, custodial 529 accounts, UGMA/UTMA accounts, Roth and traditional IRAs and qualifying U.S. savings bonds. Each type of account has different tax and beneficiary rules that need to be addressed. Second, couples need to decide what will be outlined in the agreement. Experts suggest topics such as qualified withdrawals, non-qualified withdrawals, state tax benefits, successor owners and account statements all be covered in negotiations.

California residents who are ending their marriage may benefit by consulting with a family law attorney, particularly if there is extensive and complex marital property to divide. Legal counsel can often be helpful in negotiating a comprehensive settlement agreement that addresses the applicable divorce legal issues.

Source: Forbes, "How To Protect Your College Savings During A Divorce," Brian Boswell, Aug. 28, 2016

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