When high-net-worth couples divorce, safeguarding funds that have been set aside for children’s college education may be an understandable priority. Whether tuition money is held in a 529 savings plan, trust account or traditional investment portfolio, divorce can complicate ownership and access.
Ultimately, without clear legal protections, college savings may become entangled in property division or misused for purposes other than a child’s education. Taking proactive steps during the divorce process can help to better ensure that tuition funds remain secure and are used as intended.
Crafting and executing an informed plan of action
Identifying exactly how college funds are titled and classified is generally a helpful first step forward. In most cases, 529 college savings plans are considered marital property if contributions were made during the marriage, even if only one parent is listed as the account owner. This means that the funds may be subject to division unless the parents agree to preserve them exclusively for educational purposes. A well-drafted divorce settlement can specify that the account will continue to be used only for tuition, books and related expenses, and that withdrawals must be approved by both parents or used directly to pay a child’s educational institution.
If funds are held in a trust, reviewing the trust document with one’s legal representation is going to be important. Irrevocable trusts created specifically for education are typically protected, while revocable or jointly held accounts may be more vulnerable to division. Working to modify existing documents or establish new mechanisms that better ensure funds remain available for their children’s education, regardless of changes in marital status, may be wise under certain circumstances.
Additionally, including provisions in the divorce decree about future contributions, oversight and reporting obligations can help to prevent disputes. Some agreements require both parents to contribute proportionally based on income or to share proof of continuing payments to college accounts.
Divorce inevitably changes financial priorities, but children’s education should remain a shared commitment. By taking deliberate steps to classify, protect and regulate access to college funds, parents can work to avoid unnecessary conflict and better ensure that their children’s futures are not unnecessarily disrupted.