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Factoring in college savings during divorce

When Texas couples are considering divorce, they may think about how to divide their current assets and which parents should have custody of the children. However, couples should also consider how to deal with college savings during this time so that any agreement among the couple is recorded as part of the divorce decree. Couples have a few options in factoring in college savings during the divorce process.

One option is to freeze the 529 plan during the divorce process. While taking this step will freeze the ability to make any deposits to the plan, it will also prevent either parent from making withdrawals on the account. Although there are penalties for doing so, parents can take money out of the account for their own purposes, including buying a car, paying for a vacation or other desire even though the account is meant to provide for their children's education. A parent who did not get what he or she believed to be a fair share may be tempted to raid the educational fund to equalize the settlement and freezing the account helps prevent this problem from occurring during an emotional time.

Another option is to split the 529 equally among the spouses. This strategy allows each parent to retain ownership over a separate part of the account. The advantage of this method is that each parent can make investment decisions about his or her portion. Parents may have multiple children or different investment strategies that they would like to try. This strategy gives them the flexibility of modifying risk based on their children's ages and their own comfort level. Some parents may prefer using stocks for a higher long-term yield while other parents may prefer the security of having short-term bonds and money market accounts.

A couple can also come to an agreement about college savings and include this information in the decree. Having independent legal counsel of a Texas family law attorney can help each party ensure that individual assets be protected.

Source: US News and World Report, "Discuss College Savings During Divorce Process", REYNA GOBEL, April 29, 2013

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