CO-PARENT LOSES CONTROL OVER CHILDREN'S COLLEGE SAVINGS AFTER MAKING PERSONAL WITHDRAWALS

A divorced spouse with control over a college savings account with his former spouse does not have the freedom to use funds from that account for his own purposes, according to the Appellate Division of the New Jersey Superior Court. The case in question, Daley v. Daley, involved a couple that had two shared children, and divorced in 2007 after nearly 12 years of marriage. The couple, Alexandra and Eric, agreed when they divorced that they would together create a 529 College Savings Plan account for the college tuition of the couple's two children. Eric agreed in the Property Settlement Agreement(PSA) to contribute $300 per child, per month to the account, with Alexandra having access to contribute, should she be financially able. While Eric had primary control over the account, he was required to provide a balance statement to Alexandra on an annual basis. 

In May of 2013, Alexandra returned to court to seek that the PSA be enforced, as she claimed that she had not received copies of the 529 account balances as promised, and also alleged that Eric had made unauthorized withdrawals from the account to cover personal expenses. Alexandra also requested that she be made the custodian over the 529 account to ensure that no other unauthorized withdrawals were made.

In defending against Alexandra's motion, Eric admitted that he had made multiple withdrawals from the account, asserting that he was entitled to make those withdrawals. Between 2009 and 2013, Eric stated that he had taken $33,000 from the account, which was eventually repaid, but that a February 2008 withdrawal of $29,100 to cover his state and federal tax debt had not been repaid. Eric argued that he was the owner of the account, and that no component of either tax law or the PSA stated that he was unable to use the account for periodic personal expenses, and that no rule mandated the timing of the funds' replenishment, provided that the funds were ultimately made available for the children's college expenses. Eric requested that he continue to control the 529 account.

The judge ruled in favor of Alexandra, ordering that Eric repay the $29,100, and that Alexandra hold control over the 529 account moving forward. The judge expressed concern that, if financial need required that Eric make withdrawals from the account now, without a limit on when they would need to be repaid, there was little guarantee that he would have the ability to replenish the funds when the children began college. The Appellate Panel agreed with the trial court judge. The panel reasoned that both parties had agreed to set aside these funds as an asset for the children, and that allowing the funds to be endangered by the father's unfettered withdrawals was contrary to the agreed purpose.

If you need assistance in obtaining compliance from a former spouse or co-parent with court orders and settlement agreements, contact the knowledgeable New Jersey family law attorneys at Smith & Doran for a consultation, at 973-292-0016.

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