Some Texas parents who are getting a divorce might wonder whether it will affect their ability to continue saving for their children’s college education. Since two households are more expensive to maintain than one, parents and children may need to revise their college plans. For example, expectations may need to be scaled down from an expensive private college to a state school.
Ameritrade found in a study that around 40 percent of marriages end in divorce, but more than 60 percent of couples have not made a financial contingency plan for divorce or death. This can leave parents struggling to continue saving for college when they are concerned about child and spousal support.
Parents may want to consider opening a 529 plan if they do not already have one. This allows them to save money tax-free, and if the money is withdrawn for educational purposes, there is also no tax on it. Usually, one parent is the account owner. That parent can change the account beneficiary or make withdrawals, so parents may want to include the purpose of the 529 in the divorce agreement. If the agreement addresses paying for college, there is typically a limit of five years. Paying for graduate school is rarely part of the agreement.
Couples may want to consider mediation or another alternative dispute resolution method as they negotiate a divorce agreement. This may help them reach a solution that suits them both and might be less disruptive to children than a court battle. While litigation means an adversarial approach to a divorce settlement, mediation focuses on cooperation. A divorce with children means that parents will continue to have a co-parenting relationship for at least as long as their children are minors, and negotiating an agreement may help create a healthier relationship in the long run.