When a couple in California plans to divorce, they will need to figure out what to do with any money they have in special savings accounts. This includes any cash saved for their children’s college educations. A separating spouse may want to take steps to ensure that such accounts are not used for other means after the divorce.
Two of the most popular college savings accounts are 529 plans and Coverdell education savings accounts. Those who have such savings plans should understand that they are not considered to be in the account owner’s estate. This means that a vindictive spouse could choose to withdraw the money or change the beneficiary to someone other than the child. A person can avoid this scenario by securing a settlement agreement that specifies the proper use of the account.
On the other hand, deposits in custodial 529s are treated as if they are gifts that have already been completed to the child. This means that neither parent can change the beneficiary. The child will have access to the money in the account when he or she turns 18.
The end of a marriage may involve complex issues requiring careful negotiation. In addition to education plans, a couple may also own other assets , including retirement accounts, pensions, military pensions, real estate holdings and business interests. A family law attorney might work to negotiate a settlement for his or her client that minimizes the tax consequences while also protecting the client’s other financial interests and ability to retire.