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How to protect college savings funds during a divorce

Texas couples who are divorcing may be concerned about how the separation will affect their savings. These concerns can be especially tricky when the savings are meant to benefit a third party, such as a college savings plan for their children. Couples should be sure to square away the details of any savings plans in a legal separation agreement or a divorce settlement.

Texas does not technically recognize legal separation. However, it allows for parties to contractually agree to separate their property while a divorce suit is pending. If the judge accepts the terms of this agreement as just and fair, the agreement can be incorporated into the divorce decree.

College 529 plans and other college savings vehicles may be discussed in the property portion of the separation agreement or divorce decree. Funds held in a 529 of this nature are considered a gift and no longer belong to the person who has contributed the assets to the account. Coverdell Education Savings Accounts function similarly. The account holder can make significant changes, such as changing the named beneficiary. By including a clause in the divorce agreement that the intended beneficiary is the only one who should receive the funds, the concerned parent can help provide clarity to the situation.

One way to safeguard college savings in a divorce agreement is to use a custodial account. This type of account does not permit the beneficiary to be changed. Another option is to create a trust specifically for the educational needs of a child. The trust document can name a trustee who will be responsible for carrying out the trust instructions.

Individuals who are concerned about how their property will be divided may choose to consult with a family law attorney. He or she may be able to discuss possible ways to safeguard certain assets.

HG.org: "Texas Divorce Law," Accessed Sept. 13, 2016

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