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Dividing college savings accounts in divorce

You and your spouse have been saving for your children's college education since they were in diapers. You've managed to put away a little something on a regular basis, and the college savings accounts are reaching a respectable level. Then your marriage ended. What happens to the college savings?

With some careful planning and good legal and financial guidance, you can preserve that college savings and keep it growing. Like your other shared assets, however, you have to find a way to divide the college savings accounts.

First, it's important to determine which of your assets are specifically earmarked for college. Coverdell Education Savings Accounts (CESAs) and 529 plans are designed for college savings. However, you may be saving money in custodial accounts, savings bonds, tax-deferred accounts and other instruments as well.

Next, you'll need to determine how the funds in these accounts will be divided. There are various ways to do that. Some couples divide the assets in each account so they each have one in their name. In other cases, each spouse takes sole control of one or more of the accounts. You may decide to divide the assets equally or based on how much each of you contributed to them.

Your divorce agreement should spell out how these funds will be used. CESAs and 529s have built-in restrictions limiting their use for college and other education expenses. However, you may want to have the court place similar restrictions on the use of funds in other accounts that were set up to pay for college. It's also a good idea to ask the court to prevent any withdrawals from these accounts before the divorce is final and the division has been determined.

Finally, you'll want to outline a plan for how the two of you (and perhaps grandparents and other family members) will make contributions to these accounts in the future. It's also wise for both parents to have access to information on the accounts, even if they're no longer an account owner. You can ask to receive statements, for example.

Dividing up college savings accounts can be a complicated process. It may also be more emotionally difficult than dividing some of your other marital property. These accounts represent your shared hopes and dreams for your children. That's why it's essential to focus on their best interests as you go through this process.

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Rioles Law Offices
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Providence, RI 02909

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