Divorce can change how a family manages nearly every part of its finances. But what happens to money that was saved for a child's future rather than either parent's personal use?

For many New Jersey families, that question centers on a 529 college savings plan.

Perhaps one parent opened the account years ago and made most of the contributions. Maybe both spouses deposited money into it throughout the marriage. Or perhaps the child is approaching college age, and the parents disagree about how the funds should be used.

These situations raise important questions. Can a 529 plan be divided during a divorce? Does the parent who owns the account get to control the money? Can one parent withdraw funds without the other's permission?

The answers depend on the account's ownership, the source of its funding, the terms of the divorce agreement, and the family's specific circumstances.

In New Jersey, planning for a child's education during divorce requires more than simply checking the account balance. Parents should understand how education savings fit into the broader financial settlement and establish clear rules for protecting those funds.

What Is a 529 Plan, and Why Does Divorce Complicate It?

A 529 plan is a tax-advantaged savings account designed to help pay qualified education expenses. Parents and other family members commonly use these accounts to save for college and other eligible educational costs.

Unlike an ordinary joint bank account, a 529 plan generally has an account owner and a designated beneficiary. The beneficiary is typically the child whose education the funds are intended to support.

That distinction matters during divorce.

For example, one spouse may be the legal account owner even though both spouses contributed money during the marriage. The account may also have received deposits from grandparents or other relatives.

A divorce agreement should account for these differences rather than assuming that the person named on the account is automatically entitled to make every future decision without restriction.

The goal is to protect the child's educational interests while addressing each parent's financial and legal responsibilities.

Are 529 College Savings Plans Divided in a New Jersey Divorce?

New Jersey follows the principle of equitable distribution when dividing marital property. Under N.J.S.A. 2A:34-23.1, courts consider multiple factors when determining a fair distribution of property.

Equitable distribution does not automatically mean dividing every asset equally.

When a 529 account is involved, the analysis may depend on its ownership structure, the timing and source of contributions, any applicable agreements, and the specific legal issues presented.

Who contributed the money?

The account's funding history can be important.

Consider a couple who contributed to a child's 529 plan throughout a 15-year marriage. One spouse managed the account, but both spouses' earnings helped fund it.

The fact that only one spouse handled the account does not, by itself, resolve every question about how the funds should be addressed in the divorce.

By contrast, an account funded by a third party may raise different questions about the source of the money and the account's legal ownership.

Parents should preserve account statements and contribution records so their attorneys can evaluate the circumstances accurately.

Who legally owns the account?

Account ownership is another critical consideration.

A 529 plan is not necessarily structured like a jointly owned checking account. The named owner generally exercises account-management authority, subject to the plan's rules and applicable law.

Consequently, a divorce settlement should not assume that a court can simply split the account into two equal accounts without considering the plan's requirements.

The available options may depend on the particular plan, its administrative rules, and the terms the parents can negotiate or obtain through court proceedings.

What was the money intended to accomplish?

The purpose of the savings matters to the family's planning.

A 529 plan was established to support a child's education, but divorce can create competing financial pressures. One parent may want to preserve the account for college, while the other may be concerned about current support obligations or the division of other marital assets.

These issues should be considered together, without assuming that education savings can automatically replace child support or other financial obligations.

Can One Parent Withdraw Money From a 529 Plan Without the Other's Permission?

This is one of the most important questions to address before a divorce is finalized.

Generally, the designated account owner controls account transactions under the plan's rules. If only one parent owns the account, the other parent may not have direct authority to approve or prevent withdrawals simply because they are the child's parent.

However, account ownership and contractual obligations are not the same thing.

A divorce judgment or marital settlement agreement may establish specific requirements concerning how education funds must be managed. Whether a particular restriction is enforceable depends on the agreement's language, the applicable law, and the circumstances.

For example, parents may wish to establish that:

• Withdrawals must be used for agreed-upon qualified education expenses.

• Both parents must receive periodic account statements.

• Neither parent may change the beneficiary without the required consent.

• Both parents must be notified before a substantial withdrawal.

• Unused funds must remain available for the child's future education, subject to agreed conditions.

These are possible terms to discuss during settlement negotiations, not automatic requirements under New Jersey law.

The more specific the agreement, the less room there may be for future disputes over what the parents intended.

What Happens if One Parent Uses College Savings for Personal Expenses?

Imagine that a child has $45,000 saved for college. After the divorce, the parent who controls the account withdraws a substantial portion of the balance for personal expenses.

The other parent discovers the withdrawal months later and believes the funds were supposed to remain dedicated to the child's education.

Several issues could arise.

First, the account's rules and tax consequences would need to be reviewed. A withdrawal that does not qualify for favorable tax treatment may create tax liability or penalties, depending on the transaction and applicable rules.

Second, the parents' divorce agreement must be examined. If it expressly restricts withdrawals or requires joint approval for certain decisions, the withdrawal may raise an enforcement issue.

Third, the remaining funds and the child's future education needs must be considered.

Depending on the circumstances, potential next steps could include requesting an accounting, seeking compliance with the settlement agreement, or asking the court for appropriate relief.

Parents should not assume that every disputed withdrawal is automatically unlawful or that every disagreement entitles the other parent to a particular remedy. The account documents, the agreement, and the facts will matter.

Should a New Jersey Divorce Agreement Include a Separate Education Savings Provision?

In many cases, addressing the 529 plan explicitly is a practical step.

A settlement that merely lists the account's current value may leave unanswered questions about who controls it, how future contributions will be handled, and what happens when the child begins applying to colleges.

A well-considered education savings provision can address several issues.

1. Identify the account and its current balance

Record the account owner, beneficiary, plan administrator, and approximate balance as of an agreed date.

This creates a clear starting point for discussions about the account.

2. Establish who controls the account

Specify whether the existing owner will retain control and whether the parents intend to establish additional accounts.

If the parents want to change ownership, they should confirm that the proposed arrangement is permitted under the plan's rules and understand any tax implications.

3. Explain how future contributions will work

If both parents intend to continue contributing, the agreement can describe their respective responsibilities.

For example, it might specify agreed annual contributions or establish a process for discussing additional deposits when the child's educational needs become clearer.

The terms should reflect the parents' actual financial circumstances rather than rely on vague promises.

4. Address withdrawal decisions

Parents can discuss procedures for communicating about college expenses, reviewing account activity, and resolving disagreements.

They should also distinguish between qualified education expenses and other uses of the funds.

5. Coordinate the plan with child support and college expenses

A 529 account does not eliminate the need to address child support or potential college-related obligations separately.

New Jersey law permits courts to address children's education and support as appropriate to the circumstances. See N.J.S.A. 2A:34-23.

The parents should therefore consider the education savings plan alongside their broader financial arrangements, rather than treating it as a complete solution to every future education expense.

What if the Child Does Not Attend College?

A child may decide to enter the workforce, pursue a different educational path, or attend a program with costs lower than the amount saved.

That possibility is worth addressing before the divorce is finalized.

Depending on the plan's rules and applicable tax law, the account owner may have options for retaining the funds, changing the beneficiary, or making other permitted changes.

However, those options may carry different consequences. Parents should not assume that unused education funds can automatically be divided between them or withdrawn without tax implications.

A settlement can establish a process for revisiting the account if the child's plans change. It can also address how the parents will make decisions when the original educational purpose no longer appears likely to be fulfilled.

The important point is to avoid leaving a substantial financial asset subject to conflicting expectations.

Protecting Your Child's Education During a Divorce

A divorce settlement should do more than resolve immediate financial disagreements. It should also create a workable framework for the years that follow.

For parents with college savings, that means looking beyond the current balance and considering ownership, access, future contributions, withdrawal rules, and the possibility of disagreements.

Before signing a marital settlement agreement, consider gathering:

• Recent 529 plan statements and account documents.

• Records of contributions from each parent and any third parties.

• Existing agreements or communications concerning the funds.

• Information about anticipated education expenses.

• Questions for your attorney and, when appropriate, a qualified tax professional.

These records can help clarify the issues and make negotiations more productive.

If you are considering divorce in Ocean, Monmouth, or Middlesex County, a New Jersey family law attorney can help you evaluate how education savings fit into your overall settlement and what protections may be appropriate for your circumstances.

The objective is not simply to determine who controls the account today. It is to establish clear, workable rules that protect the child's educational future while reducing the risk of another dispute tomorrow.

Contact Villani & DeLuca to discuss your divorce and financial concerns with a New Jersey family law attorney.