After thinking about this some more, a lot depends on how these “college fund” accounts are set up. If the accounts are in the grandmother’s name, I think she could withdraw the funds, give the money to the OP to spend on college expenses for the child, and then the OP would be entitled to credit for that amount towards his share of the college expenses. If the accounts are in the child’s name, or in some sort of pre-paid tuition plan which some states have, then I think the funds should be spent first, with the parents dividing remaining expenses equally between them. Likewise, any grants or scholarships should be applied to the total cost, with the parents dividing remaining expenses equally.
I agree with everyone else. It’s the kids’ money, not yours.
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That being said, go now and starting reading and understanding the college financial aid process. Do not wait until your kid is applying to college. That is too late.
My in-laws, who are kind, generous, and financially comfortable, started 529s for both my kids (their only grandchildren) about a decade ago. They own the accounts, with the kids as named beneficiaries. This has 2 consequences. First, 529s owned by a third-party (not the student or parent) are not counted as a student or parental asset on the FAFSA (the federal financial aid form). Second, as soon as any of the money from a 3rd party 529 is disbursed, it counts as non-taxable income for the tax year in which the disbursement occurred. One additional fact to note is that 529s are counted as parental assets if they are owned by the parent or the student.
Here’s the thing: Parental assets (even if they are designated for education like a 529) are attached at a much lower rate than untaxed income (e.g. gifts or grandparents paying the bills) for the purposes of computing the Expected Family Contribution, and thus diminish the potential for financial aid much less. If we had known this, we would have had my in-laws transfer the 529s to the ownership of either us or the kids several years ago. It would have increased our EFC a little at first, but it would have been stable. Now that our daughter has started college, she will lose most of her financial aid as soon as they start paying bills with the 529.
You must talk to your mother about the accounts. Find out how much money is in them, and, if your eldest is more than 2 years away from college, get the money transferred to a 529 owned by him (IOW, he is the owner and the beneficiary). Same with the other kids.
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I would say your mother’s college fund for him should indeed be counted as “your half”. Hypothetically, if your ex-wife’s parents paid for the other half, then that would be “her half”.
The money is a gift to your children, not to you.
This is what I would do:
- Take any grants/tuition assistance/scholarships money (and push your kid on these - there’s money out there, but you have to work for it).
- Take the total amount in the “Mom” fund and divide by the expected number of semesters (usually 10 - 2 per year with 2 summer sessions). Use that amount out of the fund each semester (if it’s all needed after 1).
- If after 1 and 2, there’s any left, pay half with your wife paying half.
Now, if you have a good (or even reasonable) relationship with your ex, you might think about asking if her parents did anything similar. If they did, it gets lumped in with your mom’s for 2 above.
This system has the advantage of stretching your $25K over 4 years instead of hitting you hard once the Mom money runs out. It also has the advantage that if your kid gets scholarships while at school, the Mom fund stretches farther and your liability is reduced. Ideally, if the kid gets a full-ride somehow, the Mom fund makes a nice seed fund for starting post-college life or could be used for “college expenses” that are not tuition/books/housing.
For those saying that the money belongs to the kid, I think you may be jumping the gun. If the money was intended to “help pay for college” then it DOES matter who’s paying for college. That money is to help that person (who is helping the kid), not the kid directly. Say Junior goes to CC for a semester and says, “fuck this, I’m joining a rock band”, is Junior entitled to any money left in the fund?
I think it’s up to your mom, if the money is officially still ‘hers.’
She knows what she intends with it. Your divorce agreement can’t tell your mom what to do.
+1.
Having read the other responses, I want to change mine slightly.
The most fair thing to do is to count it off the top before you split it; however, it’s not really your call to make. Your mom can apportion that money however she wants, if it’s still legally hers.
All you’ve done is reverse the situation from him to her. So under your proposal, his mom’s money gets split, but he shouldn’t worry about any money her parents are putting in? Fair is fair, if grandparent money is first money in, then ALL grandparent money should be first money in. Or, all grandparent goes to the child to pay his/her share. Both or neither, but none of this “you do it this way and don’t worry about how she does it” (for either side).
Exactly, Zakalwe. And contra Shodan’s claim, I was never arguing for a double standard. I think her parents’ contribution, if any, should count for her half, absolutely. In which case there is no concern about subterfuge.
Phew. Thanks, Whitney. It’s nice to not have unanimity against me, LOL.
This one seems totally out of left field. So, what: any money that my mom contributes to college, I still have to contribute that amount, or half that amount, or whatever? To what? Just directly to my kids for spending money? That would effectively mean that my mom’s squirreling away all this money will go to be spending money, rather than college money, since money is fungible and all. And I know that was not her intent.
Gosh. You know how after a divorce people talk about their crazy ex, and everyone’s like, good god, why did you marry that lunatic?
Right now, SlackerInc, you’re in danger of becoming that crazy ex that people talk about.
Don’t even think this way. Put it out of your mind. Meet your obligations without worrying about whether your wife has an easy time meeting hers.
And boy howdy am I with Shodan on this one.
I’m pretty simple when it comes to these things. From what I see, your obligation is the $25K. What your mom contributes is none of your concern. What your wife’s parents may be secretly funneling to her to help her out is none of your concern. Pay your court ordered obligation. Why would you want to shaft your kid of this money, anyhow?
The FAFSA calculation will include money that the OP’s mom has been accumulating as long as the account is in the name of the prospective college student. For instance, if $30,000 is in the account, and the first year of college will cost $30,000 then the fed gov will expect that all $30,000 will go to pay for the first year of college. However, if the account is not in the name of the prospective college student (OP’s mom controls the account) then it won’t be counted in the FAFSA calculation.
Some colleges use the CSS/Profile in addition to the FAFSA because they want to find out about all of those extra accounts that are floating around out there.
Bottom line - some time in April your son will get an email from a financial aid office that shows how much the first year of college will cost. Forward that email to your ex and discuss who will pay semester one and who will pay semester two. Repeat each year for the next three years.
Not quite true. Some percentage of parental assets are considered available for college (about 7 or 8 percent, IIRC, after exclusions that rise with parental age). Student assets (like bonds, bank accounts, stock, etc) are considered at a higher percentage (25 or 35, but certainly not 100%). There is one exception: a 529 held by the student but with the student as beneficiary is considered as a parental asset for the purpose of calculating EFC (see my post above).
If the grandparent has created a UTMA/UGMA account for the child, it will be counted as an asset of the student, full stop. If it’s a 529 with the grandparent as the owner, but the student as beneficiary, it is not counted at all as an asset (except, as you say, for certain schools using the CSS/Profile). This is actually true for any account (whether held as a separate account at a financial institution, or merely accounted internally by the GP).
As soon as the grandparent uses their own asset to pay any of the college bills (or gives you a gift or pays one of your other bills), you must declare the gift or payment on the following year’s FAFSA. That will be counted as untaxed/non-taxable income and will be assessed for the purposes of the following year’s financial aid at a rate of about 50%.
For example, if the GP pays $10,000 for the first semester of college, and the child was eligible for, say, $15,000 in aid for the first year. You will report that $10K payment in the next FAFSA, and year 2 EFC will increase by about $5,000, reducing financial aid accordingly.
So, if Grandma’s college accounts are still in her name, the optimal strategy is to transfer them to the student as a 529. The next best strategy is to delay the spending by Grandma as long as possible. One way would be for her to hold on to the money until the student graduates, then use the money to pay off the student loans (at a rate that does not incur the Gift Tax, presumably).
Disclaimer: not a financial aid pro, but we’ve been going through this in insane detail over the past year as my daughter has started college.
I haven’t read all the comments and I suspect what I’ve said has already been said but as a divorced guy with a child, yes, it counts.
When I split costs with my ex-wife, I really don’t care where her half of the money comes from. So, if she owes me $200 for something, she can pay me for it, her new husband can, her mom can, she can go stand out on the street corner and beg for it like a homeless person. From an accounting point of view it’s just that I’m not paying for that half, what difference does it make where it comes from?
I totally understand where you’re coming from. At first I remember thinking “What the hell, I’m already killing myself to save up money for her for college (at the time she was 5) when her half is just going to come from her mom in all likelihood” Then I realized it doesn’t matter where her half comes from so long as it doesn’t come from me.
From that POV and that POV only then your mom’s money counts towards your half.
But, as I look at your second post and glance at some of the comments it might depend on what you mean by ‘college fund’ and how some other legal stuff was set up as well as what kind of terms you’re on with your ex.
It might be worth sitting down with a tax attorney (who I’m sure will be able to understand a divorce decree just fine) for an hour and running through the scenarios to see what’s going to work out best.
I think some of this might depend on a)what the OP means by ‘college fund’. b)what Grandma wants and c)If the ex knows about the money. If she does and she’s expecting it to be split with her that might cause an even bigger mess.
You don’t have a divorced kids do you?
If I came up to you and and in conversation said “Hey mom, I was just talking to [ex wife] and we’re going to send the kid to swimming lessons, they’re only $200, so I think we got a good deal” and you said “I’d like to help out with that, here’s $50.” You better believe I’m not giving $25 of that to my ex-wife. I’m thanking you for helping me send my daughter to swimming lessons, putting that check in my checking account and writing my ex a check for $100, my half of the lessons. How I came up with my half is none of her business. As far as I know, her mom said the same thing to her, maybe she even paid for her entire half, hell, she might be making money if I split that check with her.
Thank you, Joey! There were so many comments on the other side and castigating me for even asking the question, I was questioning my whole position (and worth as a human being, LOL). Now your post is so reasonable and reawakens some righteous anger, making me feel almost like I was being gaslighted.
Rick, thanks for that detailed info. I will pass it on to my mom so she knows how to best protect her contribution.
WTF, where do you get anything about shafting my kid? My intent is that he, and all my younger kids, graduate college (if they choose to go), without any debt. I will do my utmost to help make that happen, regardless of how things are apportioned. The only issue here is whether that is going to cost me (X - Y) or (X - Y/2), with X being half of the total cost of college, and Y being the amount my mother’s fund contributes.
Or in other words, whether my mom’s contribution should reduce both my contribution and my ex-wife’s contribution equally, or just reduce mine. Either way, my kids are still getting to go to college without having to pay for any of it. So where did this “shaft” bit come from?
ETA: Joey, pretty sure my ex knows about the college fund (or, more likely, funds, plural). My mom started the first one when our oldest was born and announced the contribution each year on his birthday (and later, his younger sister). I would be totally fine with splitting the portion of the fund that was contributed to when we were still together.
Different jurisdiction, different laws. Retain a family lawyer in your jurisdiction.
From where I live, Oakminster nailed it in one, with it depending on how the fund was set up.
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SlackerInc - I don’t blame you at all for asking this question. It is so hard to sometimes untwine tough emotional feelings from logic in cases like this.
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I don’t get why parents make these types of agreements during divorce. They seem to be poorly thought out - hold parents responsible for things that are sometimes impossible for them to follow through on. To blindly agree to pay 50% of college costs seems beyond stupid to me. I know one couple who agreed this that the dad was unemployed and the mother made less than $25k a year.
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With financial aid and what not - stuff like a generic “college fund” is somewhat meaningless and sometimes harmful. It definitely needs to be planned out with either someone who has done a lot of research in the area - or the help of a financial/tax professional. You can easily costs yourself tens of thousands of dollars in financial aid or tax ramifications down the line if done incorrectly.
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That being said - you have to take the emotion out of it. There was apparently no prexisting understanding to the contrary - so the only option that make sense is what others have said: the money belongs to the kid. Assuming there was no such thing as financial aid - the money would be taken off the top - as it is the kid’s money. The rest would be split by the parents 50/50.
Your mom is free to change the way she contributes at any time - and could hold back and contribute later on to your share only if she so chooses. Maybe she is unaware of the consequences. There isn’t much you can do about it at this point (I don’t think).
It certainly would irk me if I was in your shoes - but you have to let it go. It really is your kids money - and you really did agree to pay half. I know it doesn’t seem fair.
You know if your mom died - and left your kid $1,000,000 - and then something happened to your kid - assuming he wasn’t married and had no kids or will - your wife (in most cases) would get half that? The same principle applies (sort of).
Right, but say your kid decided they really wanted swimming lessons, and you thought they were too expensive at $200. Your kid says “I will pay $50 out of the money I earned baby-sitting!”. Does you then bill your ex-wife for $100, assuming that the $50 your kid put in was really yours? Probably not. You’d expect her to pay $75, half of the remainder.
How is it different if instead this kid says “I will pay for $50 of the swim lessons out of the Christmas money grandma gave me two years ago”? It’s still the kid contributing the kid’s own money.
In the same way, let’s say the kid had college fund of several thousand dollars that was the result of a settlement because of a car accident. It would be obvious then that that money should come off the top, before expenses are split. Why is the money in this fund different, just because at some point it was owned by one parent’s mother?