College funds and the divorce process
If a divorcing couple in California has children, college savings accounts may be a topic of discussion during property division negotiations. Although parents usually open these accounts with the same goals in mind, a divorce might make one spouse start to wonder how the other spouse will handle the college fund. To protect a child’s college fund after a divorce, it is important that college savings accounts are addressed in the separation agreement.
Divorcing parents may be able to negotiate a separation agreement that includes provisions about how college savings may be used and how college savings may not be used. A list of qualified withdrawals could be included in the separation agreement along with rules about how college funds may be withdrawn. Parents should also make sure that they have listed a successor owner on the college savings account.
There are many different kinds of college savings accounts, and some accounts are more secure than others. For example, the assets in a custodial 529 account can only go to the original beneficiary that was listed on the account because the beneficiary cannot be changed. The owner of a 529 savings plan or Coverdell ESA may change the beneficiary that is listed on the account if they choose to do so. However, the assets in a Coverdell ESA must be paid to the beneficiary within 30 days after the beneficiary’s 30th birthday.
If a divorcing parent has a college fund in a normal savings account, an attorney may be able to help the parent to decide whether to move the fund to a savings plan. An attorney may also help a parent to negotiate an agreement with the other parent about how to treat money that was designated as college savings after the divorce.