Atlanta Financial Blog

My Ex and I Can’t Agree on Splitting College Costs: 5 Smart Ideas for Coming to An Agreement

My Ex and I Can’t Agree on Splitting College Costs: 5 Smart Ideas for Coming to An Agreement

Cathy C. Miller, MBA, CFP®, CRPS®, CDFA™
November 5, 2019

If you have kids and are headed for divorce, one of the most difficult negotiations maybe agreeing on how your children’s college tuition will be handled. We have seen this issue come up over and over again in divorces, and it is best to get as much clarity during the negotiation process as possible.

If you have already set aside college funds in specific investments, your agreement should specify how those funds are to be used and ensure both parties have access to statements and transaction details. You should also outline what happens if funds are left over (a happy, but unusual outcome!) However, if you haven’t set aside enough funds for college as you enter the divorce process, negotiations can become trickier. In Georgia, for example, support after the age of majority is non-modifiable, so attorneys and parents alike may be hesitant to build future obligations for college tuition into a settlement agreement. However, your agreement can still spell out what the parties agree to while specifying it is non-binding. An ex-spouse can still renege, but is often less likely to do so when the agreement is spelled out clearly.

If you are already divorced and your settlement agreement makes no mention of college funding, we have put together 5 smart ideas for working with your ex to cover college costs:

  1. Know your state’s laws. Depending on where you live, you may be legally required to contribute to children’s college costs even if their divorce decree excludes it. Currently, non-custodial parents in 17 states and Washington, D.C. can be compelled to contribute to college tuition and expenses.
  2. Explore financial aid. The custodial parent should apply for the Free Application for Federal Student Aid (FAFSA). If the custodial parent is remarried, their new spouse’s income and assets are included in the calculation for needs-based financial aid, while the non-custodial parent’s assets and income are not.
  3. Establish a 529 college savings account for your child. Setting up a 529 for children of divorce can be tricky. The contributing parent most likely should be the account owner. Contributions can be deductible from state income taxes, and there is no annual contribution limit. However, your contributions to a 529 are considered gifts. So, if you want to contribute over $15,000 in a given year, you may need some special guidance to qualify for a 5-year forward averaging treatment to avoid eating into your lifetime gift tax exclusion. A knowledgeable advisor or tax preparer can assist you with this.

Learn about our process, DivorceFIT™, designed to help you manage the details of your financial life before, during and after divorce.

  1. Consider a Roth IRA. Believe it or not, Roth IRA’s aren’t just for retirement. Contributions to a Roth are made on an after-tax basis. But withdrawals for qualified educational expenses (tuition, room and board, books and other fees) are not subject to the early withdrawal penalty. The catch? To avoid income taxes, you can only withdraw contributions (not earnings) from the Roth to fund those college expenses. There are also annual contribution limits to consider. For 2019, you may contribute up to $6,000 (or less, depending on your income). If you’re 50 or older, the annual limit for this year is $7,000—again, subject to income limits.
  2. Involve your child. If your child has her hopes set on an expensive school, but you and your ex just can’t afford it, you’ll have to temper her expectations. First, let her know there are many highly-rated state schools that provide just as good an education as a pricier private university. Second, make sure your child also contributes to her own education, either through earnings from a part-time job or through scholarships and grants. A college education is often the largest expense a family will face. Engage your child in the discussion and use it as an opportunity to explain how to do a cost-benefit analysis. This exercise can help set your child up for a lifetime of wise financial decisions.

There are many options to consider, and not all are the best solutions in every situation. An experienced financial advisor can help develop a customized plan to make college affordable for you and your children. Most importantly, remember there are many ways to pay for college, but moves that sacrifice your own financial future shouldn’t be one of them..

 Learn about our process, DivorceFIT™, designed to help you manage the details of your financial life before, during and after divorce.

 At Atlanta Financial, we have been by the side of women divorcing for more than 20 years. Through our DivorceFIT™ process, we will walk with you through the big picture financial issues all the way to the smallest of details that need to be addressed as you go through divorce and after. Our goal is to help you transition to the next phase in your life on solid financial footing. 

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