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What Happens to Children's 529 College Savings Plans After a Divorce?

It can be confusing in a Massachusetts divorce to know who gets what in terms of the equitable division of the marital assets. Bank accounts and the family home need to be divided, and determining how to do that can be hard enough. When you include other types of accounts, such as 529 college savings plans, it becomes even more confusing.

How do 529 plans work?

In a 529 college savings plan, the participant (meaning the person who creates the account) is the one responsible for funding it. The beneficiary (the person for whom the account was created) stands to profit years down the line when it's time to go to college. From a family law perspective, the problem is that when it comes time to divorce, the participant is almost always one or both parents, and under the law, it is the participant, not the beneficiary, who owns the account.

What can happen to 529 college savings plans after a divorce?

What this means is that the parents, not the child, are the legal owners of the 529 college savings plan. Most, if not all, college savings plans are created and accumulated during the course of a marriage, which means these funds, owned by one or both parents, are considered part of the marital estate, which of course must then be divided when the couple divorces. That means that the this pool of money, originally intended as a saving account for your children, can be allocated to (and possibly accessed by) one of the parents in the divorce and then possibly used for other purposes.

Are there any ways to protect the money?

Again, the money does not legally belong to your children, but instead it belongs one or both parents. The only way to ensure the money stays safe and is used as originally intended is to include a provision in your settlement agreement or divorce decree that specifies that the college funds are to remain intact. You can do this by inserting a provision into the divorce settlement agreement specifying that money contained in a 529 college savings plan can only be used for payment of the children's college expenses.

Source: "Discuss College Savings During Divorce Process," by Reyna Gobel, published at USNews.com.

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