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Preserving a child's college savings in divorce

Pennsylvania parents who are divorcing may be concerned about any college funds they have established for their children. They might wonder what could happen to the money if one of them remarries and has children or simply decides to take the funds for their own purposes.

Some of these concerns can be addressed in a settlement agreement, but another option is to put the savings into an account that does not allow the beneficiary to be altered. If the funds are in a 529 savings plan or a Coverdell Education Savings Account, then the beneficiary of record can be changed. A custodial 529 or UGMA/UTMA does not allow a change in the beneficiary. Other vehicles parents may use to save money for a child's college fund include qualified U.S. savings bonds, Roth IRAs or traditional IRAs. Savings bonds are easily returned to the government and reissued in another's name if desired after a divorce. Retirement accounts may be subject to division between the couple.

In the separation agreement, couples should include information on qualified and nonqualified withdrawals such as what to do if the beneficiary receives a scholarship or decides to live at home while in college. There should also be a clear successor, and both parents might want to receive statements from the account.

The estranged couple can also put together a parenting agreement with the assistance of their respective attorneys that specifically deals not just with custody and support but with other concerns they may have about their children. For example, if they want to specify that the child does not meet another parent's new partner until a certain amount of time has passed, they might be able to include this in the parenting agreement. However, the divorce process may be more efficient if parents make an effort to be cooperative and flexible.

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