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Making The Complex Understandable

Divorced parents face unique college financial aid issues

For many parents of college-bound students, the wait to see what kind of financial aid their children qualify for can be as stressful as waiting to see if they were accepted by the college of their choice.

For divorced parents, the process of applying for financial aid is complicated by a number of factors. Sometimes their financial circumstances are significantly different. In some cases, the income of stepparents may also be a factor.

Maximizing the amount of financial aid for which a student qualifies requires some strategizing. Following are some tips when filing the Free Application for Federal Student Aid.

First, determine which parent will file the FAFSA. Generally the parent with whom the child lived the most over the past year is considered the custodial parent and will complete the form. If that isn't spelled out in a custody agreement, the custodial parent is usually considered the one who provided the majority of the child's financial support.

Obviously the lower the custodial parent's income, the more aid is available. However, be careful not to misrepresent the situation. Schools can ask to see custody and divorce documents. Further, financial aid administrators can get suspicious if they think a custody switch was made to get greater financial aid or qualify for in-state tuition.

If the student's custodial parent has a new spouse, his or her assets and income must be reported on the FAFSA. However, if that stepparent is supporting other children (particularly other kids in college), that can help you qualify for more financial aid.

Many parents have a 529 college savings plan for their kids. It generally makes more financial sense if it's in the custodial parent's name. While it increases that parent's assets, the distributions will be tax deductible.

Even if your children are still very young when you divorce, it's wise to consider these issues during the proceedings. They're going to be stressed out enough when college application time rolls around without their parents battling over financial aid issues. It also will prevent the temptation to do something to present your custody or financial situation in a less-than-honest way. Whether college is years off or just around the corner, your family law attorney and perhaps a financial advisor can provide essential advice.

Source: Forbes, "College Financial Aid Advice for Divorced Families," Emma Johnson, accessed Jan. 27, 2016

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