As a divorce attorney in Dallas, I have seen the impact that divorce can have on a family’s college savings plan. In Texas, we follow the “community property” system, meaning that all assets acquired during the marriage belong equally to both spouses. This includes college savings plans, such as the Texas College Savings Plan, the Lonestar 529 Plan, and other similar plans.
Dividing College Savings Plan Assets
When it comes to dividing these assets, many clients consider withdrawing the funds and splitting them between the spouses. However, this approach can result in paying additional taxes due to penalties for withdrawals made for non-educational purposes. An alternative is to transfer ownership of the college savings plan to one spouse.
Transferring Ownership of College Savings Plans
One advantage of transferring ownership is that both parents can continue to contribute to the plan, even after the divorce. The decision of which spouse should assume ownership depends on various factors, including financial management experience and current account information.
College Savings Plan Ownership
In many cases, the custodial parent may become the owner of the college savings plan, with both parents entering into an agreement for future contributions. However, there may be benefits to having the non-custodial parent assume ownership, such as not having their assets and income considered during the Free Application for Federal Student Aid process.
Child Support and College Costs
It’s important to keep in mind that higher education costs are not automatically included in child support in Texas. This issue should be addressed during the divorce settlement or mediation process.
As your divorce attorney, the team at The Blacknall Firm can help ensure that your child’s future education plans, such as the Texas College Savings Plan or the Lonestar 529 Plan, are taken into consideration during these proceedings.