Many Illinois parents may have set up a college fund for their children using a 529 savings plan or some other type of savings vehicle. If the parents divorce, the owner of the account may be able to change the beneficiary on record. This means that one parent might be able to make the account beneficiary any children of a new spouse.
This can be prevented by saying in the separation agreement that the account cannot be used for anyone but the named beneficiary. This is not necessary if the account is a custodial one since the beneficiary cannot be changed on this type of account.
Another issue that should be addressed in the separation agreement is qualified withdrawals. For example, a child may decide to live at home to save money and pay rent to the parent they live with from the account. However, both parents should agree on this use of the money. Furthermore, the owner of the account can make withdrawals if the beneficiary dies, becomes disabled or receives funds such as a scholarship, and these possibilities should also be addressed in the separation agreement.
In addition to a separation agreement, parents who have minor children should also create a parenting agreement. Parents may choose a more flexible and informal agreement or they might want to specify a number of rules. The approach they take may depend on their relationship and how effectively they can cooperate as co-parents. A parent who is concerned about the other parent not adhering to the agreement may want more concrete provisions in the parenting agreement. Any major modifications to the agreement should be addressed in court.