College acceptance letters are cause for celebration and while the excitement ensues, it’s only natural for parents to feel a bit of panic. Parents generally worry about the cost of college tuition.
Divorcing parents have the added worry of wondering which parent will shoulder the financial responsibility of supporting their child’s college education. As college tuitions across the nation continue to increase the ability for a family to support one or multiple children through higher education has become nearly impossible.
The average cost of tuition and fees for the 2021-2022 school year is $43,775 at private colleges, $28,238 for out-of-state students at public schools, and $11,631 for state residents at public colleges, according to data reported to the U.S. News in an annual survey.
These numbers only represent one year of college education, room and board, textbooks, and other living expenses must be factored in. On average, these numbers are multiplied by four and increase each year with inflation. Even a percentage of the cost can be difficult for families to afford.
Legal Responsibility of Divorcing Parents to Pay College Tuition
In many states, courts may order the non-custodial parent to pay for their child’s college expenses. Individuals going through divorce and child custody negotiations in Alabama, Arizona, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Maryland, Massachusetts, Mississippi, Missouri, Montana, New Jersey, New York, North Dakota, Oregon, South Carolina, South Dakota, Utah, West Virginia, and Washington could have a legal responsibility to pay child support extending beyond childhood.
College expenses can include the following:
- Room & Board
- Extracurricular Activities
- School Supplies
- Funds for “Emergencies”
The expenses a non-custodial parent faces can add up. In some states, the non-custodial parent may be ordered to pay a percentage of college expenses in addition to paying child support for the duration of the child’s college career. In such cases, the judge weighs several factors, including the non-custodial parent’s ability to pay and the child’s access to other forms of college funding. These factors can include but are not limited to income, net worth, number of children, and access to scholarships, grants, and other financial aid.
Although some states do not require divorced parents to pay college expenses, such requirements may still be written into settlement agreements. Thus, it’s important to have a discussion about what makes the most financial sense for the family both now and in the future.
College Tuition vs. Retirement Fund
Not everyone can afford to save for their children’s higher education, as well as their own retirement. While everyone would love to be able to pay for their child’s college, more harm can be done when parents neglect to prioritize their own retirement fund.
It is in the best interest of the child for separating spouses to use creative settlement tools, especially when it comes to college support. A college support agreement includes details such as the percentage of college expenses for which each spouse is responsible, a maximum contribution, restrictions on the types of college, and the specific expenses to be covered. Below are examples of specific guidelines for lawyers and CDFA professionals can utilize.
Allocating the Cost of Tuition:
Assuming both parents desire to financially support their child’s college education, this can be the simplest option for parents with similar incomes.
Couples drafting a college support agreement, can choose to split the listed expenses in direct proportion to their respective incomes as they presently exist and include language to adjust those proportions as their incomes fluctuate in the future.
Lump Sum – Utilize a joint asset at the time of separation.
Not all assets need to be divided between the spouses. Parents can dedicate a joint asset to their children. If the couple has portfolio assets, transferring the investment portfolio into a trust fund can set the funds aside at the time of divorce. Depending on the age, income, and net worth of both spouses a lump sum payment at the time of divorce can be preferable to recurring payments.
Settlement Agreement Terms to Consider:
Ultimately, settlement agreements are written contracts in which the two drafting parties can include any terms they agree upon. If you want it, then write it in! While this may sound simple, you may not know what terms to ask for in the settlement agreement. Below are a few suggested terms that are applicable depending on your specific situation.
College savings account
Nearly everyone with kids can benefit from adding a clause to their settlement agreement regarding requiring parents to contribute to a college savings account. As a Certified Divorce Financial Analysts I often recommend adding a stipulation that each parent will jointly fund a 529 or other college saving vehicle. The contributions to these accounts can be split between the spouses per the determined allocation. All savings and growth can then be used when tuition is due. Plus there are added tax planning benefits of tax-deferred growth and the tax exclusion for the earnings withdrawn for qualified expenses. If the 529 is unfamiliar to you I recommend reading Savingforcollege.com’s book, Complete Guide to 529 Plans.
If the funds within a 529 plan are not used by the beneficiary of the plan, a new member of the family can be named to the account. This can be beneficial for families with more than one child or who want to plan for the next generation. Alternatively, a non-qualified distribution can be taken and will be subject to a 10% federal penalty on the earnings portion of the distribution.
Payment percentages and limits can involve calculations and stipulations. “SUNY Cap” is a payment limit commonly used in New York based on the cost of the State University of New York (SUNY) school. It is calculated by estimating the future cost of a child attending a SUNY school. Regardless of where the child attends college, public or private, the parent is only obligated to contribute the amount specified in the cap. Parents in other states can apply this same principle to their divorce agreement based on the tuition of their State schools. Note: Tuition prices increase year to year, SUNY cap is a tool used to mitigate higher education disputes, but it is not perfect as schools can fluctuate in price.