By FPA Members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF
Last Updated: July 5, 2011
As a divorcing parent with kids who are college-bound or currently attending higher education institutions, you can alleviate concerns over your family’s future monetary and emotional well-being by devising cost-effective strategies to pay for college expenses.
Keeping in hindsight that a recent Journal of Family Issues study revealed that parents’ contributions to their children’s needs considerably declined after divorce1, you should become fully cognizant of financial aid provisions and resources available to plan for your children’s higher education needs. With the collective counseling of a divorce financial planner, family attorney, and college financial aid expert, you can suitably prepare your children for this prodigious step in their lives and assure your family peace of mind by utilizing these following pointers:
Familiarize yourself with college education savings options and possible financial aid implications
- Prior to reaching a divorce settlement, you should evaluate all viable planning options for your children’s college funding, including 529 qualified college tuition savings plans, prepaid state tuition plans, Uniform Transfers to Minors Act (UTMA) custodial accounts, loans, grants, and merit or need-based scholarships. With the assistance of a qualified financial planner and tax professional, you can compare net-out-of-pocket higher education expenses, learn about your children’s eligibility for financial aid, and optimally implement an overall strategy sensitive to your family’s post-divorce cash flow and college financing. For instance, by funding a 529 qualified plan, you and your soon-to-be former spouse can save for your children’s higher education and share the tax-deferred benefits.
- How will your divorce impact your kids’ eligibility for financial aid? Depending on the proximity of your divorce relative to college applications, colleges may ask you about the noncustodial parent’s intention and legal obligation to pay for college expenses. Colleges may calculate only the custodial parent’s resources and household assets when determining the Expected Family Contribution (EFC) and subsequently awarding federal aid to your college-bound children. As a general rule of thumb, realize that your child will receive a higher amount of financial aid with a lower EFC.
- If you are separated and living in distinct locations with the intent to divorce, recognize that you are still considered divorced when filling out the Free Application for Federal Student Aid (FAFSA) for your college-age children.
- If you remarry, keep in mind that you will be obligated to declare your new spouse’s income, in addition to listing your income on the FAFSA.
If there are any unforeseen changes in your family’s situation (i.e. job loss by custodial parent) that may alter your child’s eligibility, make sure your child adjusts his or her FAFSA and files an appeal.
Discuss child support and potential college support arrangements with financial planners and divorce attorneys
- Be completely knowledgeable about your state’s divorce laws pertinent to post-secondary child support to assist you in financially planning for your children’s higher education. Seek the prudent advice of a divorce financial planner in tandem with a family legal professional to preserve your children’s best interests when addressing their college finances.
- In concert with coordinating child support obligations, you can formulate college support arrangements, outlining who is responsible for most of the college expenses and whether there are any limits on annual payments. You may specify and proportionately divide the amount of money you pay for college tuition, room and board, travel, and other qualified educational expenses. When you complete a FAFSA as a custodial parent, understand that you are required to list any money received as income.
Know your state’s laws relating to how majority age is defined. Mandated child support obligations may continue during your children’s college years through majority age (age 21). If majority age occurs at age 18 or upon graduation of high school, it is possible that child support can be negotiated to continue at a different amount for your children away at college to help defray some of the expenses the custodial parent experiences when they return home.
Cooperatively prepare your college-bound children to emotionally adapt and flourish as financially secure young adults
- Do not go through this challenging process of putting aside past financial disputes to discover the most feasible college funding solutions alone. With emotional counseling and the advice of a divorce financial planner, you can positively articulate college cost-savings strategies and provide your kids with some monetary benefits.
- Empower your children with the financial acumen and skills essential to adapt and thrive during their college years. Engage your children in family financial conversations and openly discuss their college financial responsibilities to enhance their money management skills. Reinforce continuous dialogue with your children about family situations and money matters to shape the virtues necessary for their own financial independence.
Do not procrastinate to tackle higher education costs until your children are ready to begin college. Proactively determine college contributions during the divorce process to ascertain that your children have the financial means needed to ultimately pursue an advanced degree and achieve future success.
1 Sue Shellenbarger’s June 2, 2011, Wall Street Journal feature, “A Hidden Cost of Divorce: College.”
FPA member Elaine King, CFP®, CDFA™, is the founder of Family & Money Matters Institute in Miami, Fla. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade.