How to Make Sure a Divorce Doesn't Disrupt an Educational Savings Account

When you begin saving for your child's college education, divorce is probably the last thing on your mind. You're looking forward to a happy future and to giving your child a solid start in life. If your marriage ends before this occurs, you may have to take action during the divorce process to ensure that your child's educational savings account goes toward its intended use.

Child's Entitlement

When it comes to divorce, the most important aspect of an educational savings account is that it's not your child's asset. With most qualified tuition plans, such as a 529 account, your child is only the beneficiary – he's entitled to the proceeds if and when the owner of the account determines to turn the funds over to him for school. Just as with a life insurance policy or some retirement benefits, the owner of an educational savings account can change the beneficiary at any time.

Marital Asset

Depending on who owns it, your child's educational savings account may be a marital asset. If the owner is a grandparent, the account is safe – your parents are not a party to your divorce. If you, your spouse or both of you own the account, it becomes part of the marital estate, subject to division in a divorce. Each of you are entitled to a portion of its value, and neither parent is legally obligated to use the account for its intended purpose, although there are tax implications if you don't. For optimum protection, you can have a trusted family member establish the account – you can still fund it over the years, but it's removed from the marital estate. You can also request in your divorce papers that the court place restrictions on the account's use, regardless of which spouse receives it as a marital asset.


Reaching a marital settlement agreement with your spouse can also protect your child's educational account and keep it growing post-divorce, without disruption. You can opt to divide one account into two separate accounts, one in the control of each parent, and each parent can continue making contributions at his or her own pace. You can state in your agreement that the account – or accounts – must must remain intact and that neither parent will access the funds for any reason other than your child's education. If either of you violate the agreement, family court can enforce it and a judge can order the guilty spouse to reimburse the account for the misappropriated funds. You can also make provisions for how the account will be funded going forward, if your child isn't yet close to college age, or that the account can't be cashed in without the consent of both parents.

Tax Issues

The Internal Revenue Service offers incentive for parents to safeguard their child's educational account and use it only for its intended purpose. Although the owner of a 529 account isn't obligated to spend it on his child's college education and he can withdraw the funds for any reason, its growth becomes taxable if he does. There's usually a 10 percent penalty as well. The IRS levies these taxes against the owner of the account, not the account itself.