Protecting Educational Savings In Divorce

Our Pittsburgh divorce attorneys know that college can be one of the most significant expenses that a parent will ever have to pay for their child, and this doesn’t change if parents get divorced. College funding can become complicated for divorced spouses, because with two households, at least two incomes, and one very high tuition, payment of college expenses can lead to renewed tensions even in a long-since settled divorce.

Pennsylvania used to statutorily require that parents who are subject to support obligations pay for the college education of their children. In an important decision called Curtis v. Kline, the Pennsylvania Supreme Court struck down this statute as unconstitutional because it was not rationally related to a legitimate state interest, and because it created a preferred class of children of divorce who are guaranteed payment for college.

While it is not required that parents pay, there are two major types of educational savings accounts that Parents can open, which are treated differently during the course of a divorce. The first is an UTMA (Uniform Transfers to Minors Act) account. These accounts are unilateral transfers (i.e. gifts) to minor children. A parent is the custodian of the account, but the child is the legal owner of the account, and all money in the account transfers to the child on their 21^st birthday. Any money withdrawn from the account has to be used to benefit the interests of the child. Because the money legally belongs to the child, it is not subject to equitable distribution during divorce as a marital asset.

The other (newer) form of account is a 529 College Savings Account. Unlike an UTMA account, the parent remains the owner of the account, and the account is subject to equitable distribution during divorce. Parents may choose to divide the account, and then transfer that money into 2 new accounts into which both parties can continue to contribute. It may be advisable to specify in the settlement agreement (or divorce decree) that the 529 account may only be used for the benefit of the child. You may also make yourself the successor-owner of your ex-spouse’s 529. Because the child does not own the account, a parent may withdraw funds at any time for any purpose (subject to additional tax liability), and any money that is not used for educational expenses reverts to the parent.

Planning for college is critically important, even while going through a divorce. Contact our experienced Allegheny County divorce lawyers today to discuss your case.