Parents spend a significant amount of time discussing how to divide marital assets during a divorce. Many parents want to know if a 529 plan is a marital asset.
The short answer…Yes, so long as the 529 plan was funded by marital resources. If the 529 plan is a marital asset, then it will need to be discussed and divided during the decision-making process in divorce.
Missouri Child Support and a 529 Plan
Child support terms are generally determined by state law and Missouri child support addresses the expenses related to the children’s basic needs: food, clothing, and shelter. Missouri child support does not address the expenses of college. The Missouri parenting plan covers college expenses separate from child support.
When discussing the parent’s agreements regarding the payment of college expenses we often discuss college savings plans such as a 529 savings plans. For divorcing parents, a 529 college savings plan is often an asset benefiting a child. A 529 college savings plan is still considered marital property and should be discussed when making agreements about the division of marital property and sharing in a child’s college expenses. The most well-intentioned families may face unintended consequences if the college savings plans are not considered during the process of divorce.
The 529 college savings program is an appealing choice for building college wealth, but many people are want to know about the 529 savings plan program and what it allows. St. Louis Divorce and Mediation Services experts explain the 529 college savings plan and discuss the marital property aspects in a Missouri divorce.
What is a 529 College Savings Plan?
The 529 Savings Plan is a type of education savings plan that result from an IRS tax code reform in 1996. Section 529 of its code requires states to provide a college savings alternative to prepaid tuition programs.
It is a state-sponsored plan that allows you to save for a beneficiary and pay for educational expenses. You can withdraw funds tax-free to pay for almost any form of college expense. Additional state or federal tax incentives, such as those offered in Missouri, may be available via 529 savings plans. This state-sponsored package offers major federal and state tax advantages, including a state income tax deduction of up to $8,000 per year ($16,000 if married filing jointly) for Missouri taxpayers. The 529 College Savings Plan is more often referred to as the Missouri MOST 529 plan (“MOST” stands for Missouri Saving for Tuition).
Almost every state in the nation has created a college savings plan, and major financial institutions are negotiating deals with individual states to administer and market their programs nationally. You are eligible to enroll in any state's college savings plan. A 529 account can be opened by anyone—parents, grandparents, other relatives, and friends. As the account owner, you can choose investments, designate a beneficiary, and decide how the money will be spent. As an owner you can also transfer part of the account to another 529 account that is owned by you or someone else.
Using the 529 Savings Account
The 529 savings account money can be used to pay for tuition and room and board at a qualifying postsecondary school when used for higher-education expenses (with limitations). Books, materials, fees, and facilities needed for tuition or attendance are also considered eligible for higher education expenses. Computers, some peripheral computer equipment, internet connectivity, and related facilities, and computer software are also covered higher-education expenditures if they are used exclusively by the student when enrolled or attending any qualifying postsecondary school in the United States or abroad.
Up to $10,000 of 529 proceeds can be used each year, per designated beneficiary, for attendance at a private, religious, or public primary or secondary school. Some expenses that parents assume to be eligible may not be. Therefore, it is important to evaluate which expenses are considered qualified and which ones are not. This will allow you to plan ahead and take full advantage of all benefits afforded by a 529 college savings account.
What Is Considered Marital Property?
According to Missouri law, marital property is a property that is purchased or is a direct result of the parties' labor and contributions during the marriage and is subject to equitable division. Equitable division does not imply that marital property is divided equally; rather, it is divided in such a way that each partner receives a fair or equitable result.
A 529 plan is considered a marital asset if it was funded by marital resources. As a result, the college savings account, along with other marital property, will be listed as an asset during the divorce process. A 529 Savings Plan, along with other marital property, must be included in the negotiations between you, your partner, and your mediator. When parents contribute to this plan, it becomes a marital asset that must be divided during a divorce.
Since 529 plans are owned by the parents, they must be viewed alongside the parents' other marital property. Jointly maintaining college savings accounts after a divorce can be contentious, so many couples opt to divide it. Any mismanagement will result in your child not having enough funds to attend the college of his or her choosing.
Non-marital property, which is characterized as property acquired by one spouse before the marriage or property acquired by a spouse with the intention of not being considered marital property, is not subject to equitable division. Such property will be listed as an asset, but it will not be included in the marital estate for division purposes.
529 Plans and Marital Property in Missouri
The issue of how to divide marital assets is not always easy to answer. One thing that parents may have overlooked is how college savings plans would be divided if the marriage ends.
However, this is something that must be carefully considered to prevent risking a child’s future education.
The parent who created the 529 college savings plan is usually listed as the owner. If the account was created for the benefit of a child, then the child is listed as the beneficiary. Even though the account is marital, the owner is the only one who can control and direct the funds.
This could raise the following concerns:
If your name is not on the account, do you believe your spouse would keep the funds for the intended purpose—paying your child's tuition?
If you and your spouse are going to share in the future educational expenses of your child, then how can you share in the benefit associated with the 529 plan?
Do you wonder what happens to the funds if your child does not use them as intended?
These and other issues should be addressed before finalizing your Missouri parenting plan and financial agreements in divorce.
Important 529 Plan Considerations in a Missouri Divorce
When you divorce, you must carefully consider how your 529 plan will be administered in the future. The simplest solution is to divide a 529 into two different accounts. College savings accounts are marital assets that must be shared equitably if at all possible. If these plans are not used for college, the account reverts to the spouse whose name is on it. Be aware that the funds in this account can be withdrawn by the spouse/parent who created it, with no fiduciary duty owed to the child.
Consult with a St. Louis Divorce Mediator
Your divorce mediation experience and satisfaction with your final agreements will be determined by who you choose as your mediator and how their system works for you and your specific needs. It is important to choose your mediator carefully – making sure the mediator’s expertise and experience fit the needs of you and your spouse. You can consult with St. Louis Divorce and Mediation Services for your divorce matter.
Nicole Davis - St. Louis Mediator and CDFA
Not all mediators are created equal. As an experienced St. Louis divorce mediator and certified divorce financial analyst (CDFA) I take a more comprehensive approach to how my clients reach their financial agreements. I don’t want clients to get blindsided by something that could have been prevented.
If it’s important for you and your spouse to be financially secure after divorce and for you both to be fully aware of the impact your agreements will have on your financial future, then please give me a call (314) 272-0727 or schedule a FREE divorce mediation consultation. I would love to talk with you and/or your spouse about our process and how we thoroughly evaluate agreements such as spousal support and child support in the divorce mediation process.
Call me today at 314-272-0727 or access my calendar below to schedule your consultation.