how to make sure money in 529 helps divorced brother and not ex-wife?

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Poblopesco
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how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Poblopesco » Sat May 11, 2019 6:06 am

I set up a 529 plan for my nephew before my brother’s recent divorce. I’d like to make sure the money I have contributed goes towards his portion of my nephew’s tuition, and not his ex-wife’s. For example, if tuition is $100k total and I have contributed $20k, I want what my brother to be responsible for is $30k and what his ex wife to be responsible for is $50k (as opposed to each of them being responsible for $40k).

I am the account holder, and my brother is listed as the parent when I set up the account. Unfortunately, the ex-wife knows about that I have opened this account and how much I put into it initially. Although it seems to me that the ex-wife has no legal grounds to get my contribution to help cover her portion of the tuition, I can also see her being a bully and pressuring my older brother into the scenario I want to avoid.

What can I do to make sure that my contribution helps my brother and not his ex-wife?

Could I transfer the funds to a new 529 owned by my brother? That way, if she asks, we can say that the money is now zero cause my financial situation changed, and I had to “move some money around”?

THY4373
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by THY4373 » Sat May 11, 2019 10:20 am

I am not a lawyer but it does seem she wouldn't have a legal claim. It does seem the risk you have here is your brother coming up with some informal agreement with his ex. Given that I am not sure making him owner for the 529 solves your problem. Honestly I am not sure how much you can do if you believe your brother will cooperate/bow to pressure/whatever to his ex on this. I am not an expert in 529 but I believe you can change the beneficiary so maybe change it to yourself for the moment. You can probably come up with way to handle disbursing the money to try to accomplish what you want but at the end of the day if your brother decides to undermine that it is going to be hard to stop.

Also keep in mind that their divorce agreement might be completely or mostly silent on college costs. My ex and I had an amicable divorce and at the recommendation of both our lawyers our divorce agreement only covers the 529s we have for our son. Basically that these will be used first to fund college and if our son doesn't go to college and/or there is left over amounts we will split 50/50. We did not commit to paying for college though that is both of our intents.

I will also say that one of the few disagreements my ex and I had while getting a divorce was her expectation that my parents were going to help us out with our son's college education. This was never my understanding as my parents paid for mine with the understanding I'd pay it forward to my kids eventually. My ex though swore she had heard my mother say different. And that she wanted my parents' money used first before any other money. I explained that what transpired financially between my parents and me post divorce was literally none of her business. She had no claim on their money or how it was spent. Anyway I checked with my mother who confirmed my original understanding which was they did not plan to help out. I explained that to my ex and that was more or less the end of it.

dbr
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by dbr » Sat May 11, 2019 10:43 am

Are you saying you are the account owner? If so I don't think there is any connection between you and their financial affairs. But you talk about $100k of which $20k is coming from you. Where is the other $80k coming from? If what you mean is that you are gifting $20k for your nephew's education and you want the ex wife to agree to ante up $50k and your brother $30k, I guess the only way to do that is they are going to have to agree to split that expense that way, but you have no say at all in what they agree to. At least that is what it sounds like. Maybe a lawyer would suggest something differently. Is the divorce already settled and what terms were agreed to for paying college expenses?

HomeStretch
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by HomeStretch » Sat May 11, 2019 10:59 am

It’s great that you want to help with your nephew’s college expenses.

Your nephew may or may not attend college. His parents may or may not be planning to fully fund college costs. It may be hard to put restrictions on your gift to dictate what each parent contributes towards college costs. I would let the parents work it out. Ultimately, if your nephew does attend college, the three of you will have helped him graduate with as little debt as possible. That’s a great gift for new grads.

Prahasaurus
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Prahasaurus » Sat May 11, 2019 11:00 am

I'm not a lawyer, but what's the issue? There is a divorce. There is a child. The husband and wife agree to some equitable split to finance university for the child when time. Let's say it's 50-50. How the father or mother comes up with that money is nobody's business. If the father gets all of his money to finance his portion of university from his parents, or his brother, or by winning the lottery, what's it to the ex-wife?

Topic Author
Poblopesco
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Poblopesco » Sat May 11, 2019 12:47 pm

Thank you for all the responses! I really appreciate your taking the time to provide input.

@dbr - To clarify:
- Yes, I am the account owner.
- Yes, the divorce is settled.

@Prahasaurus - Yes! That is my sentiment exactly. My issue is that I think my brother will go in a different direction. But it sounds like I can’t dictate how my brother and ex wife decide to split the remainder of the tuition costs.

@Homestretch - thank you for your mature and wise words. I should probably not be taking a good thing and turning it into a negative thing.

That said... one idea is to simply move the funds to another nephew/niece and cut my brother a check when the time comes to pay for tuition. I won’t get the tax benefits. But I feel like I’m getting 50 cents on the dollar if he and his ex wife split things 50/50 so maybe that way it’s at least money saved from just his pocket. Thoughts?

Prahasaurus
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Prahasaurus » Sat May 11, 2019 1:17 pm

Poblopesco wrote:
Sat May 11, 2019 12:47 pm
That said... one idea is to simply move the funds to another nephew/niece and cut my brother a check when the time comes to pay for tuition. I won’t get the tax benefits. But I feel like I’m getting 50 cents on the dollar if he and his ex wife split things 50/50 so maybe that way it’s at least money saved from just his pocket. Thoughts?
I'm still confused about what your brother has agreed with his ex-wife about your 529. Which sounds strange, because it's your money, and you should be the one who dictates what and how it's spent... But let me take a couple of scenarios:

1 - Your brother tells his ex-wife that you have a 529, and he (your brother) will not count your 529 towards his 50% commitment to his son's education. In other words, if you contribute 20k, and they believe the total cost is 200k, they each will pay 90k. As you said, you are getting 50 cents on the dollar regarding your brother's allotment. On the other hand, you are getting 100 cents on the dollar for supporting your nephew. And if this is what your brother wants, I really don't see why it's an issue for you. It's not about the ex wife, it's about your nephew. Your nephew will get all of your money, and you should be proud of what you're doing. How your brother and his ex-wife arrange the accounting, how they make up the rest, is their business, so long as they both agree. Leave it to them. Just be happy you are helping your nephew.

2 - Your brother really wants to keep all of your money as part of his commitment, but he's being bullied into not counting your money towards his allotment. Perhaps in addition to this (I'm reading between the lines here), his ex-wife is not your favorite person, and you are not happy about contributing money that she should have to contribute herself. If this is the case, I think you need to have a talk with your brother. I think you need to do a good cop bad cop routine with the ex-wife, if that will make it easier for your brother. Basically, you tell him that you are not going to contribute money to a 529 in light of the divorce, unless it's totally on your terms. And your terms are that your money will be saved by you and will go towards paying your brother's commitment. And the ex-wife's family is more than welcome to start their own 529's to lessen her burden toward the nephew's university. You have no issue with that. The more family members contributing the better! But it's your money, and you will set the terms, and if she won't agree, then there will be no 529 in your name.

And then you have your brother set up his own 529 for his son (your nephew), you gift money to your brother's 529. Now it's a win-win. You can use the 529 tax vehicle, with no tax on capital gains. And it's in your brother's name. So it counts as his commitment.

vtjon
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by vtjon » Sat May 11, 2019 2:46 pm

There might some misunderstanding here. With a 529 plan, you have an account owner and beneficiary (the student), at least with the ones I've setup. There is a contingent owner on mine but that only matters if I pass away. The parents don't necessarily play into this. I have (or had in some cases) 529 plans setup for my nieces. For one of the accounts, I change the beneficiary from a niece to my own child which is allowed since they are the same generation. This particular account is of no concern to the ex-wife. I won't be pulling from these 529s until their junior year (or second semester of their sophomore year) to avoid messing with their financial aid. If the child is years from college, I can't see how any of this would come up as the assets are own by you until they are distributed.

veindoc
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by veindoc » Sat May 11, 2019 3:00 pm

Poblopesco wrote:
Sat May 11, 2019 6:06 am
Could I transfer the funds to a new 529 owned by my brother? That way, if she asks, we can say that the money is now zero cause my financial situation changed, and I had to “move some money around”?
That’s what I would do. Keep yourself out of it.
Ex wife does not need to know where your brothers contribution is coming from.

Broken Man 1999
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Broken Man 1999 » Sun May 12, 2019 11:32 am

Is it possible each parent's contributions to your nephew's education is part of the divorce agreement? If not, what you want to happen is irrelevant.

Just focus on the one thing you are trying to do, and the only thing in your control, providing a generous gift to your nephew.

How your brother's and ex-wife's dynamics play out is out of your control.

At the end of the day you can only control the money you contribute.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

deskjockey
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by deskjockey » Sun May 12, 2019 11:50 am

veindoc wrote:
Sat May 11, 2019 3:00 pm
Poblopesco wrote:
Sat May 11, 2019 6:06 am
Could I transfer the funds to a new 529 owned by my brother? That way, if she asks, we can say that the money is now zero cause my financial situation changed, and I had to “move some money around”?
That’s what I would do. Keep yourself out of it.
Ex wife does not need to know where your brothers contribution is coming from.
Agreed, this is the best way of doing what you want to do. If, as you mentioned, there are other nephews/nieces you would also like to help out, you could also change the beneficiary of the existing account to one of those kids, then have your brother open a new 529 with him as the owner. You can then contribute to his account. It's a slightly more roundabout way of achieving the same thing and you wouldn't get the tax benefit (if your state has one, that is), but might be necessary if your plan does not allow a change in account ownership or treats is as a nonqualified distribution.

Topic Author
Poblopesco
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Joined: Sat May 11, 2019 5:42 am

Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by Poblopesco » Mon May 13, 2019 6:36 pm

Thank you all again for taking the time to share your thoughts. I’m a first time poster and was not expecting such thoughtful responses!

After thinking things over, my plan is to tell my brother that my preference is that the 529 go towards helping him with his portion of the tuition, and not his ex’s. If he is on board, then we’ll move forward with moving the funds to an account he is the owner of.

I won’t put any stipulations on how he decides to divvy who owes what for the remainder of the tuition because I feel like that sets a negative tone. And like many people have said, that’s not up to me. And honestly, if push comes to shove, and he and the ex split the remaining tuition 50/50, I would prefer my love for my nephew to over ride any bitterness I bear towards the ex.

Again, thank you all!

megabad
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by megabad » Tue May 14, 2019 9:47 am

Make sure you check your state rules on possible state tax recapture and what their plan allows and does not.

GreenGrowTheDollars
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Re: how to make sure money in 529 helps divorced brother and not ex-wife?

Post by GreenGrowTheDollars » Tue May 14, 2019 7:19 pm

Good comments earlier.

I've worked with a lot of divorced parents. It is exceedingly rare to see divorced parents pay equally towards the cost of college. In my state, divorce agreements typically don't include any requirement on paying for college. Where there are college expenses mentioned, it is often either in general terms ("share") or in the equally horrible "tuition" as if that is the full cost of attending college. No matter what the agreement specifies, what people actually do is unpredictable.

You've done a nice thing for your nephew. It will likely give him choices he might not otherwise have. I would not get in the middle between your brother and his ex-wife.

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