A 529 College Savings Plan is a tax-deferred savings account established to secure funds for future education, similar to an IRA. However, the trajectory of your family’s life may change, leading to a divorce, which then raises concerns about the management of the 529 plan.
The 529 Plan Amidst Divorce
Under Florida law, the 529 plan can only bear one name—yours or your spouse’s. Hence, when you divorce, questions about control over these funds arise. If your spouse is the named holder, can you trust them to utilize it solely for your child’s education? There’s a risk of your spouse using the funds for personal gain or even transferring the account to a new child from a subsequent relationship. Therefore, addressing these issues before finalizing the divorce is vital. Consultation with a divorce attorney might prove beneficial.
Options with a Savings Plan
When it comes to handling the 529 plan during divorce, several options exist:
You can maintain the savings plan status quo and incorporate it into your divorce agreement.
Regardless of the named holder, both spouses can agree in writing that withdrawals from the savings plan will solely serve your child’s education. The agreement should detail penalty actions in the case of early withdrawals. As the non-named spouse, you can request “interested party statements” to track the account activity. You can split the Savings Plan into two separate accounts, giving each spouse control over a new plan. While this doesn’t guarantee control over your spouse’s portion, it secures your share of your child’s education plan.
If your ex-partner holds the plan, they have discretion over its use. Nevertheless, you can incorporate specific instructions into your divorce agreement:
Notification of any distribution or withdrawal must reach the non-owner. Neither spouse can alter the plan beneficiary without mutual consent. Both parents should receive the plan statement. The agreement should cover the fate of any leftover funds post the child’s education. Decide whether the 529 plan contributions qualify as support payments. Outline what happens to the plan if the child doesn’t attend college. Ensure that the final divorce decree addresses these matters to avoid future complications. Note, the custodial parent must report the plan as an asset if they are the owner, potentially affecting student aid eligibility. Conversely, any distributions under a non-custodial parent’s ownership are deemed untaxed income for the beneficiary (child), which could lower financial aid eligibility by up to 50 percent. A financial expert can guide the optimal plan distribution.
A 529 Savings Plan is an excellent tool for tax savings while securing your child’s future. During a divorce, it transforms into a marital asset, leading to disputes over control. However, owning such a savings plan carries tax and other implications. Therefore, it’s advisable for both parents to consult a reliable financial advisor.
The legal process can get difficult, which is why we always recommend that you seek the assistance of counsel; or at least have a consultation. Schedule a consultation with one of our attorneys today to review the issues of your case, the legal options you may have, and certain rights that pertain to your unique situation.
Have more questions? Let us know by sending an email to: email@example.com and we will do our best to develop content to provide you with direction and insight!
For more information:
Check out and subscribe to our YouTube Channel
Follow us on Instagram
Like us on Facebook
Visit our website
Shop our Legal Templates
No Attorney-Client Relationship or Legal Advice: Communication of information by, in, to or through this Website and your receipt or use of it: (1) is not provided in the course of and does not create or constitute an attorney-client relationship; (2) is not intended as a solicitation; (3) is not intended to convey or constitute legal advice; and (4) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on you specific matter. The hiring of an attorney is an important decision that should not be based solely upon Web site communications or advertisements. Feel free to contact us if you need legal assistance.