Building a life with your spouse often means opening a 529 plan for your children – a college education saving plan that you contribute to throughout your child’s formative years. But when you decide to divorce, what happens to these college funds?
A 529 Plan Is An Asset During Divorce Like Any Other
While your child will continue to be the only benefactor of the 529 education plan, you should understand that the college fund can only be opened under one name – and that the person who controls the account can take money out of the fund at any time for any reason (although that money will be taxed and penalized if it is removed for reasons other than higher education for your child). Very simply, your 529 plan is an asset like any other in your marriage even though it technically belongs to your children’s future education.
When it comes to divorce and 529 plans, many couples choose to split the account into two separate accounts (one under each spouse’s name). This allows both parties to contribute to the fund without worrying that your ex-partner will take your money out of the account or close the account and also allows you to take money out of the account if you need to. Splitting 529 plans is easy in most states and does not come with any fees or penalties.
Another option is for the partner without a 529 plan to open a new plan and begin making their own contributions. Whichever option you choose, however, it is important to remember not to make 529 plan contributions after your divorce if your name is not on the account. If you do so, you lose control of what happens to the money.