Divorcing parents have a number of issues to resolve in co-parenting, particularly regarding how to pay for their children’s college expenses. This requires combining their income power to handle rising tuition rates.
During the time a couple was married, there may have been a savings plan such as a 529 plan.
In a divorce, one of the parents will assume control of the tax-advantaged account unless the account is split. The parent who becomes the sole owner is the only one who can make decisions about how these funds are used. Some experts believe that the non-custodial parent should own the plan since the funds will not be included as assets in a financial aid application.
In addition to the tax advantages of 529 plans, claiming a child as a dependent provides federal tax deductions (provided that the child is a full-time college student) This is usually handled in a divorce settlement agreement, and the parent with the higher income is often designated as the one permitted to claim the child as a dependent.
Resolving questions over who owns a 529 Plan and who will claim the child as a dependent hinge on the issue of who gets custody, one of the most contentious matters in a divorce. The decision can, however, impact the child’s financial aid eligibility.
While the only assets that are a factor in a financial aid application are those of the custodial parent, many colleges ask for additional financial aid forms that include the non-custodial parent’s financial information. In these cases, the equation becomes more complicated if the parent have remarried. Then, the assets of the other spouses may become part of a financial aid determination.
In the final analysis, a divorcing couple is best advised to overcome the contentious issues that arise in a divorce and strive to meet the court’s standard of what is in the best interest of the child. Ultimately, child custody decisions should consider how a child’s college tuition will be funded. Deciding which parent retains full custody can have a significant impact on financial aid.