529s after divorce?

[jenpane]

What is the name of your state (only U.S. law)? Illinois

Almost 2 years post-divorce, and I recently (3 months ago) started up individual 529s for my children (ages 7 and 6). I thought I was doing the responsible thing in order to be able to pay my share of their college expenses. But now a friend of mine is going through a divorce, and her lawyer told her she should NOT be contributing to a 529, because by law, the 529 funds are used to pay for expenses before parent contribution is considered. In other words, anything she puts toward the 529 would not be considered her portion?

Is this correct? I thought it was still considered the parent's asset until the time of distribution? If anyone can please explain this to me I would appreciate it. I am going to ask my financial guy again because he couldn't see any potential problems with it, but then again he is not a lawyer and is not being paid to protect my interests legally.

Also, if this is true and 529 plans are not the best route, what are my other options? I am looking at contributing approximately $2500 to $3000 per year, per child.

Thanks for any help/advice.

 

[LdiJ]

What is the name of your state (only U.S. law)? Illinois

Almost 2 years post-divorce, and I recently (3 months ago) started up individual 529s for my children (ages 7 and 6). I thought I was doing the responsible thing in order to be able to pay my share of their college expenses. But now a friend of mine is going through a divorce, and her lawyer told her she should NOT be contributing to a 529, because by law, the 529 funds are used to pay for expenses before parent contribution is considered. In other words, anything she puts toward the 529 would not be considered her portion?

Is this correct? I thought it was still considered the parent's asset until the time of distribution? If anyone can please explain this to me I would appreciate it. I am going to ask my financial guy again because he couldn't see any potential problems with it, but then again he is not a lawyer and is not being paid to protect my interests legally.

Also, if this is true and 529 plans are not the best route, what are my other options? I am looking at contributing approximately $2500 to $3000 per year, per child.

Thanks for any help/advice.

I honestly do not know the answer to that question, but I am sure that you could argue in court that any money you contributed to a 529 plan was intended to cover your share of the children's college expenses.
Had the money been contributed prior to the divorce then it would have been marital property and therefore should be split between the two parents. However you are not contributing marital money to the 529 plans.

You could set up a couple of savings accounts instead, one for each child, but in your name only.

 

[tuffbrk]

I believe that there may be a misunderstanding here. Anything contributed during the marriage, while going through the divorce, would be considered joint contribution and not be considered to be contributed solely by your friend when it comes time to pay tuition. That's different from you beginning to contribute post-divorce. You may want to check back with her or she may want to check back with her attorney to ensure she is understanding what she is being told.

 

[ecmst12]

Maybe she is talking about for FAFSA purposes, not for divorce decree arrangements.

 

[tuffbrk]

Maybe she is talking about for FAFSA purposes, not for divorce decree arrangements.

Excellent point. Clarification is definitely needed.

 

[jenpane]

Okay thanks. I figured there had to be some nuance in our situations. Her lawyer has said for her to stop contributing to the 529. In my case, we never had one until after the D.

I just can't think of any reason an account that I own (even though my children are beneficiaries) would not be considered my contribution.

I'll keep digging, but thought maybe I was missing something.

Thanks for the replies.

 

[jenpane]

Here is what her lawyer told her (and her friend who works for Cook County child support office confirmed)...

"when it's time for your kid to go to Yale and you socked away 100K all on your own in a 529, that gets spent down first and then the rest of the college expenses are divided by you, your ex, and your kid."

 

[Ohiogal]

Here is what her lawyer told her (and her friend who works for Cook County child support office confirmed)...

"when it's time for your kid to go to Yale and you socked away 100K all on your own in a 529, that gets spent down first and then the rest of the college expenses are divided by you, your ex, and your kid."

And that is very possible. Because the 529 at that point is the child's and for the child's college.

 

[Ohiogal]

read this info

http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php
http://www.ehow.com/about_7342872_illinois-529-plan.html

I have not found statute or caselaw determining how the contribution is considered so it is possible that it could be considered first. And then the rest split.

 

[nextwife]

http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php
http://www.ehow.com/about_7342872_illinois-529-plan.html

I have not found statute or caselaw determining how the contribution is considered so it is possible that it could be considered first. And then the rest split.

That sort of defeats the purpose of saving now. We've been saving for college since kiddo arrived precisly because we don't feel we'll likely be as able to contribute much by the time she's college age. It seems like counting the savings first and not as what the parent has arranged to contribute creates a disincentive to responsible fiscal PLANNING.

 

[PQN]

You have two different issues.

(1) If you are ordered to pay 50% of the childrens college costs after grants/scholarships are applied, can you use the money in the 529s that you started to cover your 50% (logically, yes but it may be worth the peace of mind to consult a local attorney)


(2) How will FAFSA treat your 529s? (Basically, they will expect you to pay 1/4 of the amount in the 529 for that child per year as part of your EFC. ) You can go to various college's websites and look at their "net price calculator" to get an idea how various incomes and savings amounts impact college costs.

 

[LdiJ]

You have two different issues.

(1) If you are ordered to pay 50% of the childrens college costs after grants/scholarships are applied, can you use the money in the 529s that you started to cover your 50% (logically, yes but it may be worth the peace of mind to consult a local attorney)


(2) How will FAFSA treat your 529s? (Basically, they will expect you to pay 1/4 of the amount in the 529 for that child per year as part of your EFC. ) You can go to various college's websites and look at their "net price calculator" to get an idea how various incomes and savings amounts impact college costs.

Again however, the entire problem can be solved by NOT using a 529 account to save for college. Yes, there are some financial consequences for that (have to pay tax on the interest yearly, etc.) but it would eliminate the entire problem. Find an alternate method for saving. Savings accounts naming the children as beneficiaries in the event of your death is one possible method.