Who Gets the Child's College Savings Account?

Higher education is often an essential component to achieving particular career goals and obtaining financial security and stability.  Parents know that college can be an enormous expense and most start saving for their children’s education as early as possible.  This is a laudable action, and parents often work very hard to make sure that their child’s college education is adequately funded.  In the event of divorce, the resources and assets intended to pay for your child’s college education may become a central issue, as to which spouse will retain the college fund.

California is a “community property” state.  This means that with only a few exceptions, property that is acquired during the marriage is marital property and will be divided equally between the parties during the divorce.  By contrast, assets that are owned by either spouse before the marriage began is separate property, depending on the way the parties treated that asset during the marriage.  This means that if the parties used assets or funds received or earned during the marriage to fund the college account, the college account is marital property.  This is true even if only one spouse’s name is on the college fund.

Most people choose to fund their child’s college education using a 529 account.  With those accounts, only one person can be named on the account but, as already discussed, as long as it is funded with marital funds, it is still marital property.  It is possible to allow just one parent to retain the entire 529 in the divorce.  However, this can be problematic as there is nothing stopping that parent from cashing out the fund after the divorce is over, barring a court order to the contrary.  Another option is to split the fund into two accounts: one for each parent.  This will not only make sure that at least half of the child’s college fund is safeguarded from financial irresponsibility on the part of one of the parents, but also will avoid the fees and taxes incurred when completely liquidating a 529 account for purposes other than education.

Note that if the college account was funded with one parent’s separate property, then it is quite possible that the college account is also separate property.  This means that it will not be subject to division in the divorce.

We have experience with helping our clients with all types of property division issues in divorce.  If you have questions about divorce or other family law issues, call us today for a consultation.