May 4, 2015

Divorce, College Funding and FAFSA

171328306-college-planning-gettyimagesParents with children who attend college get to take part in the annual ritual of filling out the Free Application for Student Aid (FAFSA). The FAFSA can be nearly as difficult as Calculus 101, but unlike calculus this math, can have real implications to your life and financial situation. If you are divorced with a child heading off to college, below are some things that you should know about FAFSA and student financial aid.

The custodial parent is responsible for filling out FAFSA and it is only their financial and household situation that are reported on the FAFSA. This can have important implications for determining eligibility for aid and for calculating the Expected Family Contribution (EFC) to the student’s college expenses. Determination of the custodial parent follows the criteria below, in descending order of importance:

  1. The Custodial parent is considered the parent with whom the child lived the majority of the time over the 12 months prior to completion of the FAFSA (not the previous calendar year).
  2. If custody time is equally split, the parent providing more financial support over the past 12 months.
  3. The parent that provides more than half of support now and will continue to do so in the future.
  4. The above are the primary criteria, but other criteria used to substantiate the above include who has legal custody, claimed the student on their tax return or has the higher income.

Legally separated parents are considered to be divorced. Never married biological parents are treated in the same manner.

Many private colleges do consider the non-custodial parent as a potential source of support, and require a supplemental financial aid form from the non-custodial parent. This affects the awarding of the school’s own aid, but not federal and state aid.

The federal government does not consider the income and assets of the non-custodial parent in determining a student’s financial need. However, it does consider child support and other support received by the custodial parent. If the custodial parent has remarried, the income and assets of the stepparent are to be reported as well. Any prenuptial agreement that absolves the stepparent of responsibility for college funding is ignored by the federal government.

Potential Impact of the Divorce Process on Student Aid Eligibility

A divorce that is still in process or recently completed can have a serious impact on student aid eligibility. The following are common divorce maneuvers that raise the reported income of a custodial parent:

  • Investment and property liquidations
  • Retirement plan divisions that include a distribution to the parent
  • College expense payments required by the divorce decree will be included in the student’s income.

If you are in the process of getting divorced and have a child in college or heading there soon, you will want to consider how your divorce will affect your child’s financial aid eligibility. A maneuver in the divorce process to financially equalize both parties may backfire if it negatively impacts financial aid eligibility.

Amy WolffABOUT THE AUTHOR
Amy Wolff
AJW Financial, Inc.

Amy Wolff’s clients describe her as a financial educator and coach. She listens to their diverse concerns and guides them through life’s most stressful transitions toward confident financial literacy and independence. By remaining accessible and open to any question, Amy helps clients avoid pitfalls and make decisions today that align well with their plans long-term. Her approach to personalized financial guidance has given countless clients a non-judgmental place to make well-reasoned financial decisions for their futures and their loved ones.

Amy is a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) and a Certified Divorce Financial Analyst™ (CDFA®). Feel free to learn more at www.ajwfinancial.com

Amy Jensen Wolff, CFP®, CDFA®
3300 Edinborough Way, Suite 550
Edina, MN 55435
Phone: 952-405-2000
www.ajwfinancial.com

Registered Representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC. Investment Advisory Services also offered through AdvisorNet Wealth Management. Cetera is under separate ownership from any other named entity.

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