Divorced parents paying for college?
The combination of divorce and college expenses is full of potential traps. Paying for college is challenging for families under the best of circumstances. When you add divorce into the mix, including the additional expenses of maintaining two households, budgets may stretch to the max.
Now that I made you all worried (sorry), let’s break down some of the issues to consider based upon whether you are planning on transitioning out of your marriage, or if you are already divorced.
Worried about how you are going to deal with your Massachusetts divorce and college expenses?
This post is Part One, covering some issues to consider when negotiating the terms of your divorce. If you hired an experienced divorce lawyer or mediator, he or she should discuss these issues with you. Over the years I have seen some poorly drafted divorce agreements that fail to adequately cover this important issue. By reading this article, you’ll be alerted to many of the traps.
One more point before I get into specifics. Divorce and college financing is complicated because of the “spill-over factor.” No, I am not talking about my waistline, although the term could apply, but all of the other issues that relate to paying for your child’s college during or after divorce; including:
- Child Support
- Division of Property
- Parental Debt and Co-Signing Student Loans
- Financial Aid
Before & During Your Divorce
If you have children, get language in your divorce agreement about college expenses. Besides college, your agreement can include vocational training for your child. This all sounds simple enough, but it really isn’t, especially if your child is years away from finishing high school. Parents’ financial circumstances can change significantly if a divorce agreement is made when Sally is in 4th grade.
Language contained in your divorce agreement regarding college payments tends to get more specific as children are closer to college, or certainly if they are already attending college at the time of divorce. Besides the joy of tuition payments, related expenses such as room and board, meal plan, books, student fees, and a lap-top (for first year students, which is usually a required item) are included under the umbrella of college expenses. Perhaps a tarp is a more appropriate choice than an umbrella in this instance?
How parents apportion college expenses varies based upon family income and the parent’s thoughts on the subject. I have worked with wealthy clients who could have paid for all college expenses, but wanted to limit their contributions because they believed that the children should have some skin in the game, and at least contribute something towards the expenses.
Some couples may agree to share college expenses equally, while others prefer contributing based upon their respective incomes.
It is almost always a good idea to consider working through these issues with your spouse in a cooperative effort. Divorce mediation provides an effective process for reaching an agreement on the issues surrounding your divorce.
Don’t Over Commit
I have worked with many divorcing clients, especially parents of younger children using the divorce mediation process, that are willing to make some serious commitments about paying for college in 10 years or some other distant time period. Even for families with solid six-figure income, this is a mistake. College costs continue to climb at alarming rates, and what if other unplanned events, such as a disability or unemployment, make this well-intentioned gesture impossible many years later?
A better approach is to discuss and attempt to agree on some general language about the children’s college expenses. I like to add language in my divorce agreements that cooperative parents agree to have a college-planning meeting, and consider enlisting the help of a college financial expert.
Another way to put some limits on your exposure is for parents to tie the contribution levels to a public university. In Massachusetts, many agreements reference UMASS Amherst as a benchmark. Thus, Sally may get into Brown, but her parents are only required to pay for one-third of the cost of UMASS Amherst. Of course, if one or both of Sally’s parents have the ability to do so, they may always pay more voluntarily.
This is another sticky issue. When you co-sign a loan for Sally, it is a liability for you, just as though it was your loan. If Sally has trouble getting a job, then the co-signer is responsible for the loan payments.
Credit reports will suffer, and your ability to obtain other loans will be negatively effected if payments fall behind.
Financial Aid is somewhat of a black hole consisting of the dreaded FAFSA form (Free Application for Student Aid), along with forms for specific universities. Funny that the application has the word “free” in it. I’d rather pay $20.00 for the application and have college be free. There is a lot of paperwork with financial aid, and it is important for parents to cooperate. This is when talking to an expert of college admissions and financial aid can be useful, but to be really effective plans must be put in place early. Certainly, freshmen year of high school is not too soon.
When it comes to financial aid, the income of the custodial parent is a key factor. If that parent is remarried, then the income of the new spouse living in the same household is also considered, further complicating this issue.
- It is not a good idea to just omit any reference to college expenses in your agreement, even if your child is very young. It is a better idea to put some general language in the agreement than to leave this subject wide open.
- Have you saved for college? If you have, your agreement needs to specify how any college savings accounts are held, as well as any future contributions to the accounts. Will both parents have access to account statements?
- Including language about the college selection process is a good idea. Expenses can add up, and are usually shared. If one parent wants Sally to apply to 20 colleges and expects the other parent to contribute, putting a reasonable limit on the applications is worth consideration for some families.
- What if Sally becomes a roadie for a band and doesn’t go to college? What happens to your 529 College Savings Plan?
In Part Two of this post, Divorce & College Expenses Strike Back, I’ll cover post-divorce matters related to college expenses, such as:
- Modifications to your divorce agreement when circumstances change.
- What happens if someone does not or cannot follow the agreement?
- How does child support relate to college costs?
If you are divorced parents paying for college or have other general questions about college expenses and divorce, just let me know and I will try to cover them in Part Two.
For assistance and to schedule a confidential consultation, please call (508) 359-4043 or email us.