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What to do with a 529 plan upon divorce?

Divorce is seldom an easy process. Many Arizona residents with children going through a divorce know how stressful it can be. Between child support and child custody, the kids may often bear the unexpected burden of divorce. Among the many issues related to asset division in a high-asset divorce, parents of children may also have to cope with how to manage any money currently set aside to help pay for a child's future college expenses.

Most parents aspire to see their child attend college but realize the financial difficulties. That is why many parents put money away in a 529 plan, which works as a college saving investment plan with tax advantages. But with most assets in divorce, they'll need to be divided. Parents with a 529 will often contemplate what to do with the account upon divorce. In normal circumstances, an individual can withdraw from the account at anytime but will face a tax penalty if the money is not used towards education.

One popular option with a 529 plan during divorce is to freeze the account. This prevents either spouse from depositing money into the account but also from taken any money out unless it is used for a designated child's education. It would also prevent a spouse who remarries from using the money toward a child of a different marriage. Then, parents will have to determine how to move forward and who will have to power to manage the investment. One option is to split the account to allow each parent to manage a portion - something a judge may do if an agreement is not possible.

College savings can be an incredibly important asset to consider amongst many in a high-asset divorce. If the process fells overwhelming, it can be helpful to work with an experienced divorce attorney to understand the factors to be weighed and obtain the best results possible.

Source: US News and World Report, "Discuss College Savings During Divorce Process," Reyna Gobel, April 29, 2013

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