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How can you protect your child’s 529 plan in a divorce?

On Behalf of | Dec 25, 2023 | Divorce |

When parents divorce, they are usually heavily concerned with how their marital situation will ultimately affect their children – both in the present and in the future.

This includes their plans for their child’s postsecondary education. If your children are still young, that may not be at the forefront of your mind, but it’s something that you shouldn’t overlook, particularly when it comes to any 529 plans you and your spouse have already started to fund.

Why is it important to address 529 plans in your split?

Your child may be the designated beneficiary on the 529 plan, but whichever spouse has it in their name is the plan’s actual owner. That means the parent whose name is on the plan can:

  • Change the beneficiary to someone else (like a new child)
  • Take a non-qualified distribution to put down on a house
  • Empty the 529 to go on vacation, buy a new car or pay for ordinary living expenses
  • Use the 529 plan to pay for their own continuing education or a new spouse’s education

These are just examples since the possibilities are endless and parents can be quick to justify their actions. That makes it imperative to make sure that you and your spouse negotiate some firm agreements in your divorce settlement. Here are some things that should be discussed:

  • Which parent will be the plan’s owner?
  • How may the funds be used? What happens if the child doesn’t go to college?
  • Will the non-owner parent be notified before any distributions are requested?
  • Can the beneficiary designation be changed? Under what terms?
  • What will be done with any unused funds in the plan after your child graduates?

In addition, it’s important to address the issue of future contributions. Will one or both parents continue paying into the plan? Will any of those contributions be counted toward either parent’s child support obligation?

When you have complex financial issues that have to be addressed in your divorce, it can help to seek experienced legal guidance accordingly. That can make it easier to move things toward the future you envision efficiently and effectively.