How Does Divorce Impact Your Child’s Education Savings?

Young mother showing her daughter a new piggy bank

Everyone says divorce is the hardest on the kids. They didn’t choose to be in this situation, and their sense of stability has been completely upended. Divorce doesn’t only affect children in the present, though – it has an impact on their future, too. Specifically, divorce can affect savings for higher education. Read on to learn how to protect your child’s future during this difficult time.

Ways to Save for Your Child’s Education

In order to understand the implications of divorce on your child’s education savings, it’s important to know what savings avenues are available to you.

One of the most well-known options is the Registered Education Savings Plan (RESP). An RESP is a government-sponsored education savings vehicle. Contributions to RESPs are tax-exempt, and the government provides a 20% grant to those who contribute up to $2,500 per year to this plan.

You can also open a regular savings account (known as a non-registered savings account because it’s not sponsored by the government). Unlike an RESP, there’s no limit to how much you can contribute per year. And you can take out money whenever you like without a penalty. Here’s the catch: non-registered savings accounts aren’t tax-exempt.

If you’d prefer to go the registered savings plan route to save for your child’s higher education, put money into a Tax-Free Savings Account (TFSA). As the name implies, you can contribute money without paying taxes on it. As with the RESP, there’s a limit as to how much you can contribute per year.

What Happens to Education Savings Plans During Divorce?

All of the savings plans mentioned above are considered part of a couple’s property when they divorce. As such, accounts such as RESPs can be divided as part of a court-ordered settlement. Under the law, a divorced couple’s new spouses can also contribute to a child’s RESP. Each member of the newly divorced couple can open a new RESP for his or her children, but they must both remember that there’s a lifetime contribution limit of $50,000 per child.

When it comes to TFSAs, one spouse can transfer money to the other spouse’s TFSA as part of the property distribution settlement. In certain situations, this transfer can take place without impacting the parent’s contribution limits.

While a non-registered savings account is considered part of a couple’s property and subject to division, the difference between this kind of account and an RESP or a TFSA is that a non-registered account is subject to tax when the asset is sold or disposed of. You won’t have to pay tax if you simply transfer a non-registered account from one person to another.

It’s helpful to understand all of the ways in which you can save for your child’s education, but divorce can frequently interfere with parents’ ability to contribute money to these accounts. It can be an expensive, emotional process. Some parents allow saving for their children’s future to fall by the wayside during this time, which means their kids will have less money to achieve their future educational goals.

Choose a Divorce Law Expert to Protect Your Child’s Future

When you’re going through a divorce, you want to make sure your children don’t suffer unduly. It’s also vital that you think about your children’s future – namely, their higher education. An expert in divorce law can ensure that your children don’t have to worry about paying for university or college when the time comes.

Galbraith Family Law lawyers are trained in Collaborative Practice, and we have been named the top firm by the Barrie Examiner multiple times. Our legal insights have also been featured in the Globe and Mail, as well as Lawyers Weekly.

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Brian Galbraith

Brian Galbraith is the owner and founder of Galbraith Family Law Professional Corporation. Brian is known in the legal community for his commitment to efficiently practicing family law using technology and streamlining the divorce processes.

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