Navigating College Funding After Divorce: What You Need to Know

As a Financial Advisor and CERTIFIED FINANCIAL PLANNER® professional who works with women, I understand that divorce can bring about many changes and challenges, especially when it comes to planning for your children’s future. The complications of a divorce touch all aspects of your family’s life, but one that many people tend to overlook is how it will impact funding your children’s education. Based on my experience in this area, here are a few things I wish every woman going through a divorce knew about college funding after divorce:

1. Understanding Your Financial Picture

The first step is to get a clear picture of your new financial reality. Post-divorce finances can be complex, so take the time to reassess your income, expenses and assets. This will help you understand what resources you have available for college funding and where you might need to make realistic adjustments in order to save for and contribute to your children’s education.

• Example: Jane, recently divorced, took a hard look at her spending habits and realized she needed to adjust her budget to accommodate college savings. By cutting back on discretionary expenses and redirecting those funds into a 529 plan, she found a manageable way to save.

2. Review and Update Your Financial Plan

Update your financial plan to reflect your new situation. Consider how divorce settlements, child support and alimony will impact your ability to save for college. If you don’t have a financial plan yet, now is the perfect time to create one. Working with a financial advisor can help ensure all aspects of your finances are aligned with your goals.

• Example: Maria worked with a financial advisor to set up a detailed savings plan. They included her alimony payments as part of the funding strategy for her daughter’s college fund, ensuring she could contribute steadily over the years.

3. Communicate with Your Ex-Spouse

If possible, maintaining open communication with your ex-spouse about college funding is crucial. Discuss and agree upon how both parties will contribute to your children’s education. If this wasn’t outlined in your divorce agreement, now is the time to establish a clear understanding to avoid future conflicts.

Conversation Example:

Sarah: "Hi, John. I want to discuss our plan for Emma’s college expenses. It’s important to me that we have a clear agreement on how we’ll both contribute."

John: "I agree. I was thinking we could each cover 50% of her tuition and split other expenses like books and housing equally."

Sarah: "That sounds fair. Let’s put this in writing so we both have a clear understanding."

4. Consider the Impact of Financial Aid

Divorce can affect financial aid eligibility for your children. Generally, only the custodial parent's income and assets are considered when determining need-based aid. This can sometimes work to your advantage, but it’s important to understand the specifics of how financial aid is calculated. Fill out the Free Application for Federal Student Aid (FAFSA) as soon as possible to get an idea of what aid might be available.

• Example: After her divorce, Andrea discovered that her son qualified for more financial aid because her income as the custodial parent was lower than their combined income pre-divorce.

5. Explore All Funding Options

There are several ways to fund your children’s education, even if you’re starting from scratch after a divorce:

• 529 Plans: These tax-advantaged savings plans are a great way to save for college. Contributions grow tax-free, and withdrawals for qualified education expenses are also tax-free.
• Scholarships and Grants: Encourage your children to apply for scholarships and grants, which don’t need to be repaid. There are many resources available for finding scholarships based on a variety of criteria.
• Student Loans: While loans should be a last resort due to the debt burden, they can be a necessary tool. Educate yourself and your children on the different types of student loans and their terms.

Example: After researching, Lisa and her son applied for multiple scholarships, securing several that significantly reduced their out-of-pocket costs.

6. Prioritize Your Own Financial Health

While funding your children’s education is important, don’t neglect your own financial well-being. Ensure you’re also saving for retirement and maintaining an emergency fund. Balancing these priorities can be challenging, but it’s crucial for your long-term financial stability.

• Example: Beth set up automatic transfers to her retirement account to ensure she was saving consistently, even while contributing to her daughter’s college fund.

7. Seek Professional Guidance

Navigating the financial complexities of college funding after divorce can be overwhelming. Working with a financial advisor can provide you with personalized strategies not only for your own future, but also for those of your dependents such as your children. We can help you create a plan that addresses both your immediate needs and long-term goals.

Divorce doesn’t have to derail your children’s college dreams. By understanding your new financial situation, communicating with your ex-spouse, exploring all funding options, speaking with a professional and prioritizing your own financial health, you can successfully navigate this challenging time. Remember, you’re not alone—support is available to help you every step of the way.

If you need assistance in planning for college funding or any other financial matters, feel free to reach out. Together, we can create a roadmap for your children’s education and your financial future.

Please Note: Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible education expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings.  As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investors or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Any opinions are those of Lauren Smith and not necessarily those of Raymond James.  This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax or legal issues, these matters should be discussed with the appropriate professional.