Safeguarding a Child’s College Savings During Divorce

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Safeguarding a Child’s College Savings During Divorce

By: Feinberg Sharma / September 20, 2016



An Illinois parent who is going through a divorce might worry about the future, especially with regard to finances. Even those who have saved carefully can see their resources decimated in contentious situations, especially if litigation is focused on minor issues. The best interests of one’s children might be the goal of all parties involved, but expensive settlements could leave options for paying legal bills and settlement costs limited. In such a case, some types of college savings plans might be diverted.


Those involved in high asset divorce situations may have saved a significant amount of money to assure their children of the best possible post-secondary education. A custodial 529 savings plan is one of the safest in terms of how the funds can be used. The beneficiary must remain constant for the life of the plan. A traditional 529 plan, however, could be changed for the use of another beneficiary in paying for college. A new spouse or child could become the recipient of these benefits in some instances. ESAs are similarly flexible in terms of possible beneficiary changes.


To head off the potential diversion of college funds, a concerned parent could request that details related to the accounts and their intended use be specified in the divorce settlement. It is also wise for a concerned party to request that they be listed on the account as an interested person, which can help in obtaining duplicate statements. This provides a method of oversight and accountability.


Because high asset divorces can be complicated, it may be sensible to discuss the situation with a divorce lawyer as early as possible. There may be a need to enlist accounting professionals to evaluate the values of family businesses, investigate possible hidden assets, and determine which assets are subject to property division rules. Not all high asset divorces have to be contentious, and in some cases, a collaborative approach could be considered.