College savings plans give families a tax-free, interest-bearing option to save for their child’s higher education.
However, divorcing spouses might overlook these savings accounts when dividing assets.
Why are 529 plans different than other assets in a divorce?
Educational savings accounts, such as a 529 plan, are not considered marital property. The child is the beneficiary, and the parent who created the account is the owner. As the owner, that spouse controls withdrawing money from the account, naming beneficiaries, and can transfer the money to a new account.
How should parents manage college savings accounts in a divorce?
When parents deposit marital funds into an educational savings account for their child, the parent who is not the account owner may want control over the money after a divorce. Spouses may consider including these stipulations in the divorce decree:
- The owner cannot change beneficiaries without permission from the other parent
- Both parents have access to monthly account balance statements
- Explain what happens if a child does not attend college
- Detail how to handle unused funds
- Require permission to withdraw money for any reason
Parents can also take the funds in the single account and split it between two 529 savings accounts. Each parent is the owner of their plan, and they can use those funds for their share of the child’s education.
Without determining how spouses can use 529 funds after a divorce, the owner has the right to do what they want with the money. Making arrangements during the divorce proceedings ensures the intended beneficiary receives the money for their education.