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College Funds and Divorce: How to Protect Your Child’s Future

While going to college isn’t the only path to a successful future, it is often one of the most straightforward. However, the cost of a college education has skyrocketed over the past several decades. According to the National Center for Education Statistics, the total cost of attending one year of college has increased more than 250% since 1980 and nearly 25% since 2010. That trend shows no sign of slowing, either. 

Most college-educated parents experienced the pressure these rising costs place on students firsthand and want to protect their children from the same stresses. That’s why many parents scramble to save money for their children’s future educations. The average student graduates with more than $25,000 in debt, so anything a parent can do to relieve this burden can help set their kids on a path for a brighter future.

The problem is that couples don’t always see eye to eye on the best ways to support their kids. This is even more true of parents who get divorced. If you’ve been diligently saving for your child’s education, the last thing you want is for your ex-spouse to take half of that fund and use it for themselves after your divorce.

It’s possible to protect college funds during a legal separation or divorce. Here’s what you need to know about protecting your children’s financial future during your split. 

Is a College Fund a Right?

Quite simply, no. A college fund is a gift parents give their children, not a right. According to state and federal law, parents’ obligations to support their kids don’t extend past high school. No parent has to pay for their kid’s university degree unless they volunteer to do so. 

This is true regardless of whether parents are married or divorced. College funds are not one of the expenses covered by child support payments. If both parents agree to continue saving for the child’s future education after getting divorced, they can do so. Still, neither parent is obligated to do this unless they signed a prenuptial or postnuptial agreement in place mandating that they put money aside for their kids. 

Asset Division in Divorce: Who Owns Your Kid’s College Fund?

The biggest struggle many parents have when trying to protect their kid’s college fund through a divorce is asset division. Oregon is an equitable distribution state, which means both spouses have a right to a fair portion of their marital assets. This includes any savings and investment accounts that contain marital funds, which include any income earned after the couple was married. In other words, a college fund started by married parents may be eligible for division during divorce. 

That can cause problems. If you jointly own the fund, your spouse can request half of it during your split. Once the fund has been divided, you no longer have any say over what the other half is used for. Your ex may use it to benefit your children, but that’s not guaranteed. They could also withdraw the funds for their own purposes and leave your kids without half the funds they expected for their future education.

Protecting Your Child’s College Fund 

While getting divorced can risk your child’s college funds, you can also take steps to protect them before and during the process. 

Before Your Divorce 

The most effective way to guard your children’s financial future is to kickstart the process before filing for divorce. Strategies you may use include:

  • Set Up a 529 Plan: These plans apply a tax penalty if the funds are withdrawn for reasons other than paying for the beneficiary’s education. While they can be divided in a divorce, the tax penalty may discourage your co-parent from misusing the money.
  • Use a UTMA or UGMA Transfer: If you set up an account for your child under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act, the funds are officially theirs and not eligible for division in your divorce. However, this means your kid is the one who can make decisions about the money, so they may choose to use it for purposes other than education once they’re an adult.
  • Set Up a Trust Fund: Trust funds can be separate from your marital estate. If you set up an irrevocable fund for your child’s education, the funds are no longer your property and cannot be divided in your divorce.

During Your Split

Once you’ve begun your divorce, it may be too late to use the above methods. However, you can still put in the effort to protect your kids’ tuition money with tactics like:

  • Talking to Your Co-Parent: In some cases, simply talking to your partner can be enough to reassure you that they will leave the money alone. 
  • Negotiating for Full Ownership of the Funds: If you don’t trust that your partner will leave the funds alone, you can negotiate to keep the college funds in exchange for other savings. You can likely offer fewer assets than you’ll receive in return since your partner would lose 10% or more of the funds if they withdrew them for any reason other than the kids’ education.
  • Making Paying for College Part of Your Divorce Settlement: As you negotiate a settlement, you can make college savings a part of the process. If you agree on a settlement that requires your ex to continue saving toward your child’s higher education, they cannot violate the agreement without legal consequences.

Expert Legal Counsel for Protecting College Funds During Divorce

A college fund is one of the best gifts you can give your kids. Don’t let your divorce ruin the time and effort you’ve put towards saving for their future schooling. Instead, consult a skilled divorce attorney like Stacy Regele of Regele Law, LLC. She can help you determine the best solution for guarding your child’s future. Learn more by scheduling your consultation today.