You can never really be fully prepared to have kids until you hold that bundle of joy in your arms for the first time. There is only so much that advice and reading books can do to cover the ins and outs of parenthood. For many, that applies to finances as well. Let’s face it, kids are expensive. Diapers, formula, clothing, activities, private school, after school – the list goes on and on. Then, before you know it, comes that big expense that parents hope for and dread at the same time…college.
Most of us have heard the advice, “it’s never too soon to start saving for college.” But, have you tried to answer the challenging questions yet, like: Where will the money come from? How much should we put aside each month? What sort of account should we use? Those are tough questions, right? Now, imagine how you are going to handle it if you were in the middle of a divorce?
In North Carolina, generally speaking, there is no legal obligation to financially provide for children after they turn 18 and graduate from high school. That means, the Court cannot obligate either parent to provide for a child’s college expenses. Most people don’t plan to get divorced. So, where does that leave a family going through a separation when it comes to meeting those future needs? Planning ahead could benefit your family whether you decide to save for your child’s education now or utilize existing assets to pay for college.
You have some options to ensure your child’s future.
Two parents can agree to include in their Separation Agreement that they will be legally obligated to save for college or provide for a portion of the child’s college expenses. A well-drafted Agreement can clearly outline each parent’s responsibilities for college, both while the child is still a minor and once the child is in college. However, it is very important to remember that this must be included in a legally binding Agreement – a verbal agreement with your now ex-spouse won’t be legally enforceable in court. Think now about what you are able to spend, what should be included in the expenses and whether there should be a cap on the total annual amount.
If the parents already have college savings accounts, such as a 529 plan, they can agree to continue to contribute to those accounts or preserve them for college. One approach is that both parents continue to have access to the accounts (with one remaining custodian of each), but neither can use the money other than for the benefit of the children’s education (or as specified in the 529 plan). If the funds are withdrawn for a reason outside of the Plan(s), then the agreement may address immediate remedies with tax penalties. Be sure to review and plan statements and disclosures as well as all other marital assets while going through the divorce process so that you can make fully informed decisions.
We all want what is best for our children and a college education can be the key to opening many doors to their future. If two parents remain committed to providing for their children, assisting with college can remain a priority and joint endeavor even when two parents are no longer together.