If you are like most parents, you have thought long and hard about how to fund your children’s college education. Most families want to do their best to provide for their children’s education, so they save if they can afford it, and when the time comes, they choose a school based on what they can afford. But while paying for a child’s education is strictly voluntary for intact families, in New York divorced parents may be ordered by a court to contribute to a child’s continuing education. That’s ideal for a divorced parent who is willing to educate their child regardless of cost and wants a former spouse to be on the hook to do likewise. For other divorced parents, it could be financially devastating.
With the possibility that a court might force them to pay for college at a rate that may be beyond their ability or willingness to pay, it is often wise for divorcing parents to negotiate to include the issue of paying for college in their divorce settlement agreements. There are many options to consider when negotiating these terms, and this list is by no means exhaustive, but I have tried to provide an overview of how these clauses work, and offer some suggestions on what should be considered when negotiating these terms.
Most college expense provisions in a settlement agreement will say that the parties have agreed to share the cost of the college bound child’s “tuition, room, board, mandatory fees, books, and travel expenses.” Those terms are defined by the agreement, and as is often the case in the law, the devil is in the details. If you want an expense included or excluded, you must be specific.
First, notice what is excluded from the list. The list does not include any of the costs associated with getting into college in the first place. These costs typically include college entrance exam fees (for SAT tests), SAT preparatory courses, consultant fees (consultants are increasingly common when applying for schools since they can help maximize financial aid and scholarships), college application fees, costs associated with visiting schools during the selection process, and even tutoring expenses. If you want to ensure that parents share these expenses, your agreement must say so.
Of the items that are on the list, “Travel expenses” might include the purchase of a car (new, used, leased?), car insurance, and even money for gas and car repairs if the child attends a local school; it may include metro card costs for local students; or it might include airfare, bus-fare or train-fare to get the student to and from school for summer vacation and holidays. Make sure your agreement is clear on what is included in travel expenses.
“Room and Board” is usually limited to the cost for the dorm and food plan at any given university. Some students, especially in their junior and senior years, may want to live off campus in a shared apartment. If you intend to include contributions to rental and food as part of the definition of “room and board” you need to be specific in your agreement.
“Mandatory fees” are fees added on by the school that a student must pay. In this one area, at least, there is usually little argument.
“Books” can be purchased new, used, or as an ebook, and they can even be rented! You should be certain the student is required to select the least expensive appropriate alternative.
“College” typically includes a child’s education as a full-time matriculated student in a fully accredited college or university. If may not include private technical or certificate based educational facilities, or even a part time university program, unless you specify that it will. It also usually excludes graduate schools. If you want to include these additional programs, you should include them in the definition of covered educational expenses.
“Tuition” seems straightforward, but that’s not necessarily the case. It starts with the amount the school charges to educate your child. Most agreements typically reduce that number by the amount of financial aid, grants and scholarships received by the student. Your agreement should require that the parents and child cooperate and timely file all financial aid and scholarship applications. If your agreement leaves this out, there is no obligation to try to offset tuition by available funding.
Notice that student loans are not mentioned as part of the financial aid. If you want your student to borrow guaranteed student loans to help fund her or his education, your agreement must specifically say so, or the child will not be required to apply for or accept a loan.
Does your child have an existing (as of the divorce cut off date) educational savings account like a 529 plan or educational IRA? If so, make sure the agreement states that this fund will be preserved until the child enters college, and it will be exhausted first to pay tuition before any parental contributions are made. Any college savings plans set up after the divorce, funded by a third party as a gift to one parent by a third party, may not come off the top of the tuition bill. In those cases, the payment typically will offset only one parent’s required contributions.
The agreement will also contain the formula for calculating the parent’s tuition obligation after subtracting grants, financial aid, scholarships, and loans, if appropriate. Most agreements follow one of two approaches. Either the parents agree to a 50/50 split of the tuition, or they agree on a pro-rata sharing of the expense based on a comparison of the parties’ income (which is viewed as approximating what each parent can afford). For instance, if one parent earns $100,000 per year, and the other earns $50,000 per year, one parent would pay 2/3 of the total cost, while the other parent would pay 1/3 of the cost.
Make sure your agreement requires each parent to pay a share of the college expenses. I’ve seen a number of older agreements that required only the parent who pays child support to pay a certain percentage of the college expenses. So who pays the balance? If the agreement does not specify the other parent, you may well find yourself in court arguing about this issue with a former spouse, or your child will have to pay the bill.
What if your child decides he or she wants to go to a pricey private school? Are you on the hook for your share of that cost? The answer is yes, unless your agreement provides for a limit or “cap” on your contribution. Traditionally, where a cap existed, it was usually set at the maximum amount charged by a state university, including room and board expenses. In that way, if your child attends Party Time University at a cost of $100,000 a year with your ex-spouse’s blessing, your maximum contribution would be limited to your percentage share of the cost of the state university, even if the actual cost was much higher.
A word of caution about caps – make sure you know if they are applied with or without reductions for financial aid to avoid losing that benefit. For instance, if Party Time University costs $100,000 and the financial aid package your child receives is $10,000, then the balance due is $90,000. If each parent is responsible for 50% of expenses without regard to a cap, the cost would be $45,000 each per year. If each parent was responsible for 50% up to a state university cap of $20,000, how much would each parent pay? Most people would say $10,000, but that’s not necessarily the case. If your agreement said the financial aid comes off the top of the cap amount, rather then the total tuition bill, then the contribution would be based on the $20,000 state school costs, less $10,000 in financial aid, leaving your responsibility at 50% of $10,000 or $5,000. Make sure your agreement says what you mean!
Another factor to consider and include as part of your negotiations is how any tax benefits for college expenses are to be allocated. There are tax advantages to paying for college, and they seem to change annually. You may agree to simply alternate claiming any available benefits with your former spouse; you may agree that the person paying the lions share of the cost will receive the benefit every year; or you may provide that if one party is ever over the income threshold to receive the benefit, the benefit automatically goes to the qualifying parent (perhaps with some other concessions for the non-qualifying parent). Make sure you discuss these issues with your tax advisor and your divorce attorney to preserve any benefits you may be entitled to receive now or in the future.
So what happens when there is no agreement on how to pay for college after divorce? You can either work out an agreement when the child is ready to attend college, or, if the matter is left to a court, most parents will be ordered to contribute to the expenses. The courts of New York have historically looked to the educational levels reached by the parents, the income available, and the student’s aptitude to decide what is appropriate. An interesting recent case, Pamela T. v. Marc B., 2011 N.Y. Slip Op. 21355 (NY Supreme 2011) was decided in the Supreme Court, New York County. In that case, the Father was compelled to contribute to the cost of a private university, over his objection, and without any state university cap. If you want to avoid this possibility, make sure your divorce settlement agreement specifies what you will or will not pay for your children’s college educations.
As always, if you want to discuss your impending divorce, or any of the issues contained in this blog entry, please give us a call.
Submitted and written by Francine Pickett Cohen, Esq.
© Francine Pickett Cohen, Esq., Staten Island, New York, All Rights Reserved – December 5, 2011
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