There is a moment in a lot of my settlement negotiations where both parents agree completely, and I still have to slow things down.
The agreement is this: the 529 accounts are for the children, so we do not need to fight about them. Everyone nods. Then I ask who the account owner is, and the room gets quiet, because usually only one person knows the answer, and it is the person whose name is on it.
Who Owns It Matters More Than Who It Is For
A 529 is not a trust for your child. It has a single account owner, and that owner holds the controls. The owner can typically change the beneficiary to another qualifying family member, can change the investment allocation, and can take the money out entirely. A non-qualified withdrawal costs income tax on the earnings plus a ten percent penalty, which is a real deterrent, but a deterrent is not a lock.
So when a settlement says the accounts are for the children and stops there, it has resolved a feeling rather than a mechanism. Two years later, one parent is looking at a tuition bill and the other parent is the only one who can authorize the withdrawal.
What a Usable Provision Actually Says
The provisions that hold up are boring and specific. Who is the owner going forward? Who is the successor owner if that person dies. Can the beneficiary be changed, and if so, only with whose written consent. Who requests distributions, on what notice, and with what documentation. Who gets the statements, both parents or one. What happens to money left over after the last child finishes school.
That last one used to be a footnote. It is not anymore.
Overfunding Was Always a Risk, and Now It Cuts Differently
Successful families often overfund these accounts, sometimes substantially. Grandparents open their own. Someone superfunds by making five years of annual exclusion gifts at once, which is a genuinely smart estate planning move and a genuinely awkward divorce asset, because when a large sum moved out of the marital balance sheet into an account with one name on it looks very different depending on which side of the table you are sitting on. I have seen quite a few fights on this issue– one where the accounts were superfunded and the wife thought the husband purposely and secretly moved monies out of the marital estate to plan for divorce. It turned out that she was on every email agreeing to the transfers and so the superfunded accounts were designated for the children’s education. That was then; now we can go further.
Federal law changed in 2025 in ways that make leftover balances more usable than they were. The rules now allow a meaningful larger annual withdrawal for elementary and secondary school expenses than the previous ten thousand dollar cap. Additionally, the laws broadened what counts as a qualified K through 12 expenses beyond tuition, and they opened up certain postsecondary credential and licensing programs. Separately, under earlier legislation, a long-held account can move a limited lifetime amount into the beneficiary’s Roth IRA, subject to conditions.
I am deliberately not putting precise figures and effective dates in a blog post, because the phase-ins differ and the numbers move. The point for a divorcing family is directional and it is significant: an overfunded 529 is now less of a trapped asset and more of a flexible one, which means it deserves to be negotiated rather than waved past.
The Private School Question
In New York, private school tuition is not automatically an add-on expense. It is fought about, and the arguments turn on the children’s history in private education, the parents’ means, the parents’ educational backgrounds and what was actually agreed to before the marriage ended. Remember that consistency for your children matters and school is part of that package so if they were in private school during the marriage, they are likely going to be completing their education in private school.
If a 529 has been the funding source for K through 12 tuition all along, the expanded federal treatment strengthens the argument that it should continue to be, and it changes the arithmetic of who pays what out of pocket. That is worth raising early, while the tuition allocation is still being drafted, not after.
Do Not Change the Beneficiary Once the Case Is Filed
I have to say this plainly, because the instinct is real and it is a serious mistake.
Once a divorce action is commenced in New York, automatic orders bind both parties. They restrict transferring or disposing of assets and they restrict changing beneficiary designations, absent the other side’s consent or a court order. A 529 sits squarely in that territory. Redirecting an account to a different child, or to a niece, or to yourself, is not housekeeping. It is the sort of step that damages your credibility for the rest of the case, and credibility is an asset you cannot buy back.
If the beneficiary designation is genuinely wrong, that is a conversation with your attorney, and if necessary with the court. It is not a form you fill out over a weekend.
Where This Goes Wrong Later
The failures I see are almost never about the money in the account. They are about visibility and consent.
One parent stops receiving statements and has no idea whether the balance is intact. A parent who is the owner takes a distribution for something the other parent does not consider a qualified expense. A grandparent-owned account nobody disclosed surfaces during the child’s junior year and reopens a closed negotiation. A child gets a substantial scholarship, and the agreement is silent on what happens to the surplus.
Every one of those is preventable with two paragraphs written while the parties are still talking to each other.
What This Means If You Are Negotiating Now
Pull the actual account statements, all of them, including anything a grandparent opened, and confirm the owner, the successor owner, and the beneficiary on each. Decide who holds each account after the divorce and who gets to see it. Write down how distributions get requested and approved. Address the leftover balance and the scholarship scenario explicitly. If the balances are large, or if a superfunding gift happened close to the filing, treat that as a valuation issue and not a formality.
Education money is usually the one thing two divorcing parents still agree about.. If you have significant 529 balances and children still in school, ask an experienced attorney to look at the ownership structure before the agreement is signed rather than after.