College Costs and Your Divorce

Parents Want To Help Their Children Meet College Expenses

Parents are persuaded by the information that college graduates, on average, have lifetime earnings of $1 million more than those who do not attend college. Folks differ philosophically as to how much of the cost parents should bear. Many parents want their children to select college majors that will eventually lead to gainful employment. Nevertheless, most parents do understand that the high cost of post-secondary education can impair their children’s ability to achieve their degrees unless the parents assist them. In addition, the overhang of college debt can impact the career path and future opportunities for adult children to marry, acquire homes, start businesses, and parent their own children.

Divorce Disrupts Plans to Pay for College

Most parents, even high-earning parents, find divorce disrupts their ability to pay for college costs for their children.

Some parents will have planned to pay college costs from their earnings during college years, and now may find that they have massive debts from their divorce, may discover that they must pay a promissory note to the other spouse for settlement of the marital estate, and that they may have a significant maintenance obligation to the other parent to now maintain two households rather than the single household they previously anticipated. Funds in savings and investment accounts, already considered by the parents to be earmarked for college expenses, will often be treated as part of the marital estate, depending on the legal arrangements for those funds. Funds in the marital estate would then be equitably divided between the parents and might become unavailable to defray college costs for the children.

Regardless of the plans that parents had for their children’s college years, divorce can throw those plans into disarray. Suddenly, each parent has separate housing expenses, professional fees in the divorce and other unplanned financial consequences of breaking up the marriage. Worse, the process of divorce results in both parents taking stock, to realize that the parents may not have made adequate provision for their own retirement years that are just over the horizon, particularly now that there will be two retirement households. “Intact” families have the luxury to remain oblivious to the risks to retirement security posed by payment of high college fees, but divorcing parents do not have that luxury.

Sometimes, a parent’s earnings become dramatically impaired during the divorce process. The sort of mid-life crisis that results in divorce can lead to a serious reassessment of professional goals, in which the parent experiences a career change, either voluntarily or involuntarily. Rare is the parent who becomes actually more financially productive in the period surrounding their divorce, though many parents recover their earning ability within a short time after the scars of the divorce heal. The reduced cash flow can make payment of college expenses appear far less appropriate than the previous earning level, particularly given the need to now maintain two households.

Divorce often disrupts parental relationships with adolescent and young adult children, and the resulting chaos can undermine a parent’s desire to pay for college costs. It is essential to isolate the feelings of today from your analysis of what is practical for you and your family and to limit your communication with your children regarding the financial chaos you are experiencing.

Legal Obligations to Pay for College

Across the country, as well as over time, various courts have differed in what is expected of parents.

Many states require courts to review the financial ability of parents to pay all or a specified amount of the children’s college fees and expenses, and in appropriate cases will order college fees to be paid by one or both parents, if that is “equitable.”  Some parents object to these orders because parents cannot be ordered to pay college fees and expenses outside the context of a divorce, and there has been the perspective that the ordinary interaction of parents and children regarding the terms for college assistance is disrupted by Court involvement. Until July 1, 1997, Colorado Courts had jurisdiction to enter orders for payment of college costs as part of the divorce decree, after analyzing the ability of the parents to pay those costs. However, since July 1, 1997, Colorado Courts have lacked jurisdiction to enter orders for parents to pay college costs for divorce decrees entered after that date, without express consent by the parents to have those orders entered.

Colorado Courts Will Enforce Certain College Cost Orders

Orders to pay college fees and expenses can be enforced by Colorado Courts, in the following circumstances:

• The order for payment of college costs and Decree in the dissolution of marriage was entered before July 1, 1997; and
• The order for payment of college costs was entered with the consent of the parent who is now being expected to contribute to college costs.

Courts generally retain the ability to modify previous orders and can determine at a later date that enforcement of a previous order is no longer equitable. Further, there can be no contempt of the previous order if the parent ordered to pay college expenses lacks the ability to pay those expenses.

Reasons for Agreeing to College Expenses That Courts Cannot Impose

Often, the very fact that a Court lacks jurisdiction to impose payment of college expenses will be a powerful incentive for one or both parents to settle the case on a basis that provides for payment of college fees.

Further, the savings to each parent from a relatively early settlement of their dissolution of marriage can provide a very substantial source of funds to pay those expenses.

If a parent both expects to have the ability to pay for the children’s college expenses AND expects to actually pay those costs anyway, the express agreement to pay the costs as part of the divorce settlement can result in a more favorable settlement. Each parent is likely to assess what is “fair” in other components of the settlement given the agreements the parents make about payment of college expenses. Both parents are likely to consider the agreement to pay college costs has real, tangible value as an expense to the paying parent and a relief of necessity to the other parent.

An offer to pay college costs as part of a comprehensive settlement proposal is likely to address one of the most basic fears that both parents have that their own relationship issues may irrevocably damage the children’s future. It will go far to ease the pain of the situation to address this concern in a transparent fashion, rather than rely on good intentions at a time when “trust” is pretty frail between the two parents. Talking through how to make the decisions about what college costs are reasonable can help re-establish a positive relationship for the future, in which these two parents will always be connected through their shared interest in the well-being of the children.

A parent who has entered into a binding, court-ordered commitment to pay college costs will also be less subject to any perspective of a subsequent spouse that the payment of college costs for the children of a prior marriage is somehow financially disloyal to the subsequent spouse. This is beneficial to the subsequent relationship, as it avoids any sense of betrayal about the use of funds.

Sometimes, a joint statement of the parents to the children that they have made provision together for college will allay fears for the children that the parents are no longer acting as parents. It is crucial that “credit” be given to both the parent who is paying and the parent who is making room for that payment by lowering expectations in the settlement given the payment commitment. This is true, even if it does not feel that way to the other parent, as it is important for children to view both their parents as committed to higher education.

Common Terms of an Agreement Concerning College Costs

Parents often agree to settlement language in their separation agreement that establishes some of the following points:

• The child must be enrolled in a degree-granting program at an accredited institution, or be enrolled in a vocational education program on which the parents agree;
• The child must be maintaining some reasonable progress toward a degree, sometimes reflected in a minimum GPA for continuing support;
• The child must file financial aid applications unless both parents agree this is a useless exercise;
• The number of years is specified for the college expense support obligation, absent an agreement by the paying parent(s) to go beyond that number of years;
• A ceiling may be set at the highest level of in-state tuition and living expenses at a four-year public university in Colorado. Note that this establishes the agreed ceiling but each parent remains entirely free to go well beyond the previous commitment, depending upon the parent’s ability to pay and the child’s ability to benefit from a different environment;
• Sometimes, parents specify whether or not the expenses to be paid will include tutoring, therapy, vehicle expenses, semester abroad, sorority fees, and so forth, depending on the parents’ assessments of their children’s needs and lifestyle;
• Sometimes, parents specify that the child must contribute at a specified level or earn at a specified level for summer employment, unless enrolled in a summer externship accepted by the paying parents, to encourage a level of industry and avoid a sense of entitlement;
• Sometimes, parents agree that each will pay a portion of these expenses in an agreed ratio, whether 50:50, 25:75 or some other ratio;
• The child will be informed that the college costs are being paid by agreement of both the parents; and
• This obligation to pay college costs is not enforceable by the child.

Parents must also decide whether the language will be “precatory” or “mandatory.” “Precatory” provisions regarding college will specify that the court cannot enforce them, by way of contempt or otherwise, and the language expresses an intent by the parents, but the obligation is a “moral” obligation only, rather than an enforceable contract or court order. Parents with highly inconsistent and uncertain sources of income will generally prefer “precatory” language, but in a settlement context, the “mandatory” approach has greater settlement value.

Pitfalls of an Agreement to Pay College Costs

However much you desire to have concrete arrangements to pay for college costs it may just not be appropriate for your case.

It is possible that segregation of sufficient assets for college would unreasonably reduce the circumstances of both parents. It is possible that a financial commitment from one parent to pay for college would unreasonably impair the ability of that same parent to pay appropriate levels of maintenance to the other parent. A fear that college otherwise will be impossible for the children may motivate a parent to accept a settlement offer that is just not sufficient to meet that parent’s reasonable needs. Sometimes, both parents must look seriously at their situation and realize that they cannot, as a practical matter, afford both college and retirement before they die. Your children can still go to college, and you can still encourage them to do so, but they will have to work harder, incur more debt and possibly have to make economical choices about the manner of their education. If you and your divorcing spouse cannot realistically reach an agreement to pay college costs, it is better to have a forthright discussion to recognize that reality quite early in the process and then proceed with the remainder of your case without addressing this issue.

Even if an agreement to pay college costs seems quite sustainable and realistic at the time of the divorce, the obligation to pay college costs can become unexpectedly onerous, depending on unanticipated medical, professional or business events in the future of the paying parent. While some Courts have considered that the Court retains an ability to modify the obligation, such a modification is likely to be considered remote. This remote prospect to modify the obligation is understandable, where one of the parties relied upon this agreement by the other party, in accepting other terms of a settlement that may have been less favorable than would have been desired without the commitment to pay college costs. This is why a “precatory” obligation has less settlement value than a “mandatory” obligation.

Divorce and Its Effect on Financial Aid

College financial aid calculations are based on the financial means of parents, without regard to whether or not the parents have a legal obligation to pay for college.

Rarely, a child will be considered emancipated, and financial aid would be considered as if the child is an orphan if the parents have little or no relationship with the child. However, this is not a strategy that parents should follow with their child.

Parents can be compelled by the Court to cooperate with providing FAFSA information to aid the child’s financial aid application process, provided that the parenting plan is still subject to Order of the Court. This ability to force a parent’s cooperation with the FAFSA process is generally considered to expire in Colorado on the child’s 19th birthday, even though the child will generally be treated as a “dependent” for financial aid purposes until age 27.

Child Support When a Child Goes to College

We are often: does child support continue through college? No, it does not as child support ends at age 19 in Colorado. A child’s college expenses must generally by paid the child, although the parents are entitled to help if they want to.

In relation to college expenses, a Colorado court cannot order a parent to pay both child support and college costs, even if a child is under age 19, and even if accommodations for the child are maintained in the home of the parent receiving child support to that date. 

A Court can also determine that the support obligation toward the child is being met by payment of college costs. However, the previous child support order for payment of monthly child support remains in force unless modified, and must be complied with by its terms.

This modification to avoid duplicate payments of child support and college costs can be ordered:

1. At the time of the original agreement to pay the college fees, to adjust automatically when the first college term begins,
2. By agreement and joint notice from the parents to the court at the time the child starts college, or
3. By filing a motion to modify the previous child support order to reflect that the order is abated which the child is in college and expenses are being paid by the parent—but this last alternative is only effective when the court enters an order on the motion.

Sometimes, a parent will both pay college costs and pay child support, even though a court cannot enter these orders, in recognition of the benefit for a child to have a “home base” that exceeds the financial circumstances of the recipient parent were child support not paid, or so that a child can live at home for a transitional period or while attending community college.

College Costs and Grandparents

Grandparents are not under the jurisdiction of the court.

Most grandparents have not entered into legal instruments that require them to pay for college costs, even if there may generally be an expectation that they may do so. Few grandparents, regardless of previous expectation, will continue to pay if there is a general estrangement between the children and that side of the family stemming from the divorce. Further, many of the college cost arrangements for wealthy families are established by way of a family trust, where the terms of such trusts almost always specify that any such payment is entirely discretionary on the part of the trustee. Although, as a practical matter, there may be an expectation that one set of grandparents may pay the obligation of the parent for college, the college costs agreement forming part of the parties’ divorce settlement would generally refer only to the parent, while possibly also acknowledging that the parents’ obligation can be met by the grandparents.

Professional Advice in Considering Alternatives For College Costs

There are lots of questions…

• What commitments can we afford to make?
• Now that we are divorcing, what makes sense as far as allocation of these responsibilities?
• Can we afford to both fund college and retire someday, now that we are getting divorced?
• What benefit would there be to use the college expense issue to support settlement efforts?
• What language should there be in my separation agreement, if we decide to go forward with a college costs commitment?
• What if we decide one of our children would benefit from vocational training, rather than college? What if we don’t identify this until later?
• Is “precatory” language best for my circumstance or is “mandatory” language better?
• Will the whole college cost issue derail my settlement?
• How can we reach agreements on these issues as responsible co-parents, when we can barely speak to one another?

Remember, you are not alone in the analysis of these issues.

You should discuss these issues in depth with both your financial advisors and your lawyers. All these professionals will work with you toward your goals for yourself and your children. However, none of them will encourage you to enter into risky agreements that will jeopardize your future.