eparation, student loans, and college tuition can sometimes make a messy mix. Parenting with an ex and planning how to pay for your child’s college education can be tricky. However, it’s possible for separated parents to put their differences aside and make their kid’s college savings plan work year after year.
Separation changes many long-term plans for both parents, from mutual funds to retirement savings and everything in between. If you’re getting separated and have children, no matter how young they may be, it’s best to consider the impact this new situation will have on their future education expenses.
While it may seem complicated, all it takes is learning the basics and making the most of what your state offers.
Let’s start with the essentials and go through the most important steps to saving for your kid’s college education.
Most states mandate that separating parents have to spell out college cost agreements in divorce papers. The clause requires parents to agree on the contributions they plan to make to cover educational expenses.
If you live in a state with this requirement, you have two options to resolve it. You can reach an agreement with your ex-partner or you can leave it to the court to decide for you.
When you have young kids, it can be challenging to make exact plans to pay for college expenses that won’t come due until far in the future. However, just like retirement savings, it’s wise to plan your child’s college fund as soon as possible.
Keep in mind that divorce laws vary from state to state, and that includes the rules regarding your kid’s college payments. Some state laws don’t include clauses for paying for a child’s college for divorced parents. In Maine, for example, once a child turns 18, divorced parents aren’t obligated to support them financially any longer. On the other hand, in Washington, the courts can order non-custodial parents to pay for their kid’s college.
Using a 529 college savings plan to save for college is usually ideal for separated parents. Similarly to Roth IRA accounts, 529 savings plans grow tax-deferred and future withdrawals are tax-free for valid education expenses.
Ideally, parents have already set up a savings account for their child’s college education before the separation or divorce process begins. But if they haven’t, it’s not too late to establish a 529 after the separation.
Typically, a 529 savings plan is established with a brokerage firm through one of the parent’s accounts. However, since it’s technically possible to change the account owner or beneficiary, or even withdraw the funds, it would be best to use the divorce agreement to specify your savings plans.
You can enable both parents to monitor the savings account, or you can even decide to split it in two if you and your ex are both comfortable. Additionally, children can have multiple 529 accounts which allows both parents to establish separate accounts.
(By the way: Always consult with a tax professional on matters related to a 529 savings account.)
Filling out the FAFSA form correctly for your unique co-parenting situation is an essential step to save money (when the time comes). The FAFSA is used by the U.S. Department of Education for determining a person’s eligibility for federal student aid. It’s a financial aid form that you use to apply to access federal student loans, grants, and work-study funds.
Divorce impacts financial aid eligibility for your kid’s college expenses. Depending on your situation and co-parenting arrangements, there are several criteria for determining which custodial parent files the application.
Let’s say your child spends their time 50/50 between both households. In this case, FAFSA requires the information of the parent who has the highest income. Or, if you’re divorced and don’t live with your co-parent, the current income of the custodial parent is the only one that can go into the FAFSA.
These are just two examples of many possible criteria. Be sure to do your research on how your co-parenting setup affects how you answer the form’s questions.
Completing the free application will not only help you establish a prepaid tuition plan but may also provide additional flexibility through government student loans. However, keep in mind that the owner of the 529 plan and their personal financial situation plays an important role in aid qualification —the FAFSA collects this financial information to determines whether the applicant is eligible for financial aid or not.
To make sure you’re on the right path, consult with a tax professional before making any decisions.
The costs of a four-year college add up quickly. While there’s no doubt that college is expensive, divorced parents may qualify for various scholarships. Many scholarship programs don’t depend on your marital status and are worth the time it takes to apply. For example, many families don’t realize merit-based scholarships can get awarded regardless of the parent’s financial situation.
Conducting thorough research about scholarship availability and aid eligibility takes time and dedication, so many parents skip this step thinking they aren’t eligible anyway. It’s true, scholarships require effort for you and the kids — or you have to research while your child has to write essays — but the time you invest now will save you a lot of headaches later.
Some colleges will even match the funds awarded by merit-based scholarships. For example, if your kid gets tuition for $20,000 for being the best math student in your state, the university may match it by giving an additional $20,000 scholarship.
If you want to save your kid from student loan debt and start saving for college as soon as possible, make a plan with your ex-partner and put everything in writing.
It would be great to try to avoid taking the other party to court. But if your ex-partner doesn’t feel they can commit to a steady financial contribution in the future, court may be the best solution. That way, covering the future cost of college becomes a legal order, and your ex will be obligated by court to make the contributions.
Once you’ve come to an agreement and defined a mutual savings goal, it’ll be time to put the details on paper. Whether you plan on sending your kid to a private college or a public one, it would be helpful to include the average costs of all future expenses, regardless of your child’s age at the moment.
My ex and I worked on defining who pays for what. Realizing how important it was to create a detailed plan for education savings, we were careful to plan for a wide range of education-related costs.
We listed all acceptable expenses my child may have during a four-year college education, including tuition costs, meal plans, books, technology, and housing. This way, we reached an approximal final sum we could agree on and planned our savings accordingly.
Covering every potential expense for a four-year college does take some brainstorming, but it’s very beneficial to have it all documented before the bills start rolling in.
Establishing a financial plan with an ex-partner is often challenging, especially since it usually involves constant communication between the parties. Agreeing on covering the tuition cost is one thing, but staying in touch regarding all the finances in between is another story. Apps like Onward can help you save for your child’s college fund without even talking to your ex by allowing you to request payments for the savings account.
Money talk tends to make separations harder than they already are, and the app meets the specific expense tracking needs of divorced and separated parents. It will help reduce tension and ease communication about money for both parties.
Onward takes care of all the financial communication with your ex-partner by allowing you to propose future expenses, resolve past paybacks, suggest expense splits, add or remove expenses, and upload receipts and photos. No more awkward texts about getting paid back!
Onward makes it easy for both co-parents to track their spending by month, child, or expense category. Budgeting for higher education just got a lot easier.
Talking to a financial advisor may be a good idea if you aren’t sure where to begin or can’t wrap your head around tax deductions, state income tax, contribution limits, investment options, and tax breaks. There’s a lot that goes into tax treatment and financial aid eligibility for your child’s college education expenses.
A financial expert will help you set up a savings account correctly and understand possible tax benefits even before your kid starts high school. If you can, include a financial planner in the conversation while creating a divorce agreement to save you headaches down the road.
Whether your child ends up at a community college, public college, or private university, the bottom line is that you’ve already taken the first step toward saving by doing your research.
With a plan in place for saving, communicating with your co-parent, applying for aid, and using a financial expert, you’ll be able to build up a solid savings account for your child’s future. It takes time and effort, but before you know it, you’ll be dropping them off at their dorms and waving a tearful goodbye.
Diana is a writer who specializes in blogging. She's on a mission to inform and uplift people in complex and confusing life situations she's been through herself. When not working, you'll find her at the seaside or in the mountains.