Many parents jointly open a tax advantaged 529 savings account to save for their child’s college expense. When parents divorce, the ownership of the 529 account must be decided. If you and your spouse can agree, financial planners recommend that ownership should pass to the non-custodial parent because their assets and income are not included on the FAFSA, which may result in your child qualifying for more financial aid. If, on the other hand, the custodial parent maintains ownership, they would have to include the value of the 529 on the FAFSA potentially decreasing a student’s financial aid eligibility.
Another consideration for parents of college-aged children is who will claim the child for tax purposes. Divorcing parents must determine who will claim the child for purposes of the IRS’s dependent exemption – assuming the child is a full-time student – and note that the parent who claims the college student as a deduction is also the parent who is eligible for any college credits available in that tax year. Sometimes, as part of a divorce settlement, the higher earning spouse is designated as the one who can claim the adult child as a dependent. However, if that parent exceeds a certain income, the IRS credits are not available and therefore squandered. Closely examining your financial picture before making decisions will ensure you will not lose any tax benefits.
Custody is often a contentious matter during divorces for a many reasons. Few parents consider that the custody decision also has future implications for the child’s financial aid moving on to college. As long as divorced parents reside separately, the FAFSA, or Free Application for Federal Student Aid, uses the custodial parent’s finances to determine financial aid eligibility, which can translate into increased aid. However, there is always the chance that the university will go beyond the FAFSA when determining aid eligibility. Roughly a third of universities will take into account the custodial AND non-custodial incomes. Also consider that a new marriage and the income it brings to either parent’s household will be calculated into the applicable formula.
There are many financial issues to consider when divorcing from property division to child custody. The decisions that you make now can effect you and your family’s future. Many divorcing couples benefit from the knowledge and expertise of an experienced family law attorney who can help navigate the process to avoid costly mistakes. Contact the Law Offices of Schlesinger & Strauss for help with divorce, parental time arrangements, child support, marital asset division, or a post-judgement modifications.
