The College Board reports that costs for college go up at least 3 percent every year. Despite these rising costs, most couples do not have a financial plan in case one dies or the two get divorced. California parents generally cannot be required to pay for a child’s college education after divorce, but it may be an issue parents wish to address in the divorce agreement.
Maintaining two households can create a significant financial strain that makes it difficult to continue saving for college. Spousal and child support payments must be prioritized over paying for college, but parents may already have a 529 plan at the time of the divorce. There are no taxes on funds withdrawn from a 529 plan that go toward education, so it can be an excellent option for college savings. However, since it is usually owned by one parent and the owner can change the beneficiary or owner, parents may want to address its use in the divorce agreement. They could also split the 529 plan, or each could be given the ability to monitor it.
When parents do include a plan to help toward college expenses in the divorce agreement, there are usually stipulations. For example, the agreement may specify that the support ends after five years. It may also limit how much parents must contribute.
While negotiating property division and issues such as how to pay for college, parents should make sure they understand the expenses associated with various assets. For example, sometimes, a custodial parent wants to keep the family home to avoid disrupting the children’s lives too much in exchange for another asset of equal value. However, it is important that they account for the cost of taxes, insurance, upkeep and other expenses associated with the home. Some retirement accounts or other assets may also be taxed on distribution.