Divorce: How advisors can help their clients navigate this transition
Navigating clients through a divorce can be complicated and challenging for financial advisors. You may have clients with my529 accounts — are you prepared to assist with the division of this often-overlooked asset?
“Even an amicable divorce can cause problems with a child’s college savings plans. [Divorce attorneys] may not be aware of all of the potential consequences of divorce on a child’s eligibility for financial aid or the nuances of need-analysis formulas,” college savings expert Mark Kantrowitz wrote on the relationship between divorce and college savings.
Certified financial planner Melissa Joy says that “because it is possible to change a 529 account owner or beneficiary, or the funds can be withdrawn, it is important to outline specific plans for those savings in a divorce agreement.”1
Other relevant concerns may include the separation of assets; custodial or noncustodial status; and remarriage and prenuptial agreements.
Some items to consider:
Split the account(s).
Account owners have the ability to split the assets in a my529 account into two or more accounts in accordance with the percentages established in the divorce decree. If only one account exists for each beneficiary, the other parent may open a new account for each beneficiary so both parents are account owners. Then, divide the funds between the accounts. In this scenario, each parent would be responsible for their own account on behalf of each beneficiary.
Change account ownership.
In some divorce situations, it may be necessary to change account ownership. Federal law allows for such ownership changes. To update account owner information, fill out Form 505.
Kantrowitz recommends that “generally, the custodial parent should also be the account owner of the child’s 529 college savings plans.”
Ensuring the custodial parent is an account owner can make a difference for financial aid. A student’s financial aid eligibility could potentially take a greater hit due to 529 assets held by a noncustodial parent, whereas custodial parent assets only reduce aid up to 5.64% per Kantrowitz. This scenario may require a parent to change ownership of the account to that of their former spouse to avoid a reduction in aid.
Determine or change successor account owners.
An account owner going through a divorce may also designate a new primary or secondary successor account owner — or possibly make changes to an existing successor account owner. A successor account owner will assume all rights and obligations to the my529 account if the account owner dies. However, the successor is not considered a joint account owner and cannot initiate transactions, sign forms or request information from my529 about the account. The designation, as well as a change or removal, can be completed online or by submitting Form 515.
Set up interested party access.
my529 makes it easy for an account owner to establish interested party/view-only access for statements, contributions and withdrawals. That way, former spouses can be kept in the loop, able to view transactions and keep track of the progress of the educational savings of their children, whether they are the account owner or not. Set up interested party access from the account owner’s online account or by submitting Form 120.
my529 can help.
Each client’s individual circumstances will determine how they approach their 529 assets during a divorce. While my529 does not dispense financial or legal advice, our team can help advisors navigate accounts, provide the proper forms, set up interested party or other levels of Limited Power of Attorney access and answer questions about my529.
Contact us.
my529’s Relationship Management Team may be contacted at advisorinfo@my529.org or toll-free at 888.529.1886.
You can also schedule time with us at calendly.com/advisorinfo.
1 Konish, Laurie. 2018. “How to keep your divorce from sabotaging your children’s college education.” CNBC. Accessed March 27, 2025. https://www.cnbc.com/2018/05/18/how-to-keep-your-divorce-from-sabotaging-your-childrens-college-education.html.
From the FAN — Spring 2025
