Treatment of College Savings Accounts in Virginia Divorce

Posted on May 3rd, 2016, by Jonathan McHugh in Divorce, Family Law. No Comments

College ExpensesWith the rising costs of college education, many families are establishing college savings accounts for their children. While this is certainly a good and well-thought out plan for the future, it is unlikely that parents ever consider this question: What happens to the college savings accounts upon a divorce?

College savings accounts, including Virginia 529 plans, are usually titled in names of one or both parents, who are technically the “owner” or “owners” of such accounts. The child is then listed as the beneficiary on the account. Depending on the type of account and the plan’s rules and regulations, a child will have a certain number of years to use money from the college savings account for their educational pursuits.

In a Virginia divorce which involves the division of assets and liabilities, Virginia Code Section 20-107.3 mandates that the court must classify property as separate property, martial property, or some combination or “hybrid” of separate and marital property. A college savings account presents an interesting dilemma, as the parents may very well be listed as the owners of the account, yet they act more as trustees for the benefit of the minor child. So, what options do parties to a divorce have in the likely event that their college savings account is not divisible in the equitable distribution portion of their divorce? Here are two possibilities:

  1. Resolve the Issue Within a Settlement Agreement. If the parties are able to resolve their issues through an out-of-court settlement, they can dictate the terms of how they want to divide the college savings account in their agreement. For example, the parties can agree that their child has a certain number of years after high school to use the funds in the account for higher education purposes. If the funds are not used within the agreed-upon time frame, then the parties can agree that the money will be divided between the parents or alternatively that it will be transferred to the child. The parties can get creative with how they structure this portion of their agreement.
  2. Stipulate Prior to the Trial. If the parties are going to court to have a judge decide the division of their marital property, then they might stipulate prior to trial how the college savings account will be divided. The parties should strongly consider this option, because it is possible the court could decline to order how the account is divided, which would leave them without any guidance or direction. Given that college savings accounts are for the benefit of the child or children, a court may elect to deem these accounts as outside the scope of its equitable distribution statutory authority.

Although divorce is often a contentious and painful process for all of those involved, both parties would be best served to not fight and argue over college savings accounts. In addition to possibly affecting the financial and educational future of a child, the outcome in court will be very difficult to predict.

If you are facing a divorce involving the division of a college savings plan, be sure to consult with an experienced family law attorney. The family lawyers at Livesay & Myers, P.C. have years of experience in divorce cases involving 529 plans and other college savings accounts in Virginia. Contact us to schedule a consultation today.

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Jonathan McHugh is a family law attorney in the Leesburg office of Livesay & Myers. He is experienced with every type of family law matter in the courts of Northern Virginia, including divorce, equitable distribution, custody, visitation and support. Mr. McHugh has particular expertise with cases involving government or military retirement and benefits.


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