Parents getting divorced often have a laundry list of items they plan to divide, including the family home, cars, furniture, collectibles, joint bank accounts and brokerage accounts. But according to this estate planning and family law attorney, an asset frequently overlooked by these parents is the 529 college savings account.

“A lot of times they forget it’s an asset,” said Jennifer Guimond-Quigley, managing partner of her Chicago-based law practice. “One of the misnomers is that the account is owned by the child or it’s controlled in some way by the child,” she said. “The reality is, minor kids can’t own these accounts.” The party who set it up (generally mom or dad) is in control, said Guimond-Quigley, who noted that during their marriages, at least half her clients or their spouses started a 529 account for their minor children.

A couple that’s divorcing doesn’t have to divvy up the 529 accounts they’ve opened for their children. In fact, she said, it’s a lot less paperwork if the accounts are left alone. But 529 accounts that remain intact should be addressed in the divorce judgment, she said.

In many cases, she sees divorcing spouses come to an agreement that whatever 529 plan funds they’ve accumulated shall be preserved for the benefit of their child or children. There may be a provision in the judgment that both parties will still contribute to that account in some fashion, she said, and typically there’s a very clear obligation not to touch the funds without an agreement by the parties or without a further court order.

The parties in a divorce must also agree what the 529 plan funds will be used for, she said. When children are young, it’s often not clear if they’ll attend college and what the cost of college will be, she said, so a court will often “reserve the issue” so it can be revisited it in the future.

If parents decide to split a 529 account in accordance with a divorce action, a penalty is unlikely although there may be an administrative fee, said Guimond-Quigley. However, each state has its own 529 plan(s) and its own rules, she said, so families should consult with their plan to identify any penalties and the taxes that could be assessed.

Should parents decide to keep their children’s 529 accounts intact, the divorce judgment should spell out a number of points, she said. For example, it should include a stipulation on what happens to a 529 account if the child doesn’t go to college and use the funds for educational purposes, including who will pay the associated tax penalties.

The judgment should also indicate whether both parties get to see the 529 account statements, who’ll contribute to the account (including how much and when), and whether or not the funds can be used for a child other than the one named on the account. Judgments may also indicate that the parents and child will agree on the choice and cost of college, she said.

According to Guimond-Quigley, the judgment should note if other funds are also being allocated for college and, if so, which ones should be allocated first. Finally, a judgment should spell out when contributions to a 529 account are to terminate, she said, and it may even stipulate the maximum age at which the children can use the money in the account for educational purposes. The judgment should also clearly state how assets remaining in the account after that date are to be distributed, she said.

Although plenty of 529-related factors need to be addressed in a judgment, she said, “I don’t think there’s a general way” to do it. Instead, she said, it’s all depends on the needs of the family.

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