Let’s face it, marriages don’t always go as planned. Divorce can not only disrupt our personal relationships, it can also have lasting financial effects. Financial aid for college can be one of those areas where these repercussions are felt. Understanding financial aid eligibility is difficult enough when it only pertains to one family’s financial situation, but what happens when the situation becomes a little more complex?
How is the conversation affected when your family situation more closely resembles “Modern Family” and not so much “Leave it to Beaver?”
Non-traditional family situations can present a variety of complications that may require closer scrutiny before your child makes the decision to apply for financial aid. Let’s review three of the most common questions we receive and the rules that apply to consider if these situations apply to you:
- When we fill out the FAFSA, who is considered the Parent(s)?
- What are the obligations and/or tax benefits to the non-custodial parent when it comes to helping pay for college?
- What happens if one or both parents remarry? Do stepparents have to report their income on the FAFSA?
1. When we fill out the FAFSA, who is considered the “Parent(s)”?
It is important to understand that the legal custodial agreement is not always going to be the same as determining the custodial parent for federal financial aid purposes. When we define “Custodial Parent” for financial aid purposes, it is generally going to be the parent you lived with the most during the past 12 months (This is the 12-month period ending on the FAFSA application date). According to the U.S. Department of Education, the following rules apply when determining who are your legal parents for purposes of federal student aid:
- If your parents are living together and are not married, answer the questions about both parents.
- If your parents are divorced or separated and don’t live together, answer the questions about the parent with whom you lived with the most during the past 12 months. If you lived the same amount of time with each parent, give answers about the parent who provided more financial support during the past 12 months or during the most recent year that you received support from a parent.
- If your parents are divorced but live together, you’ll indicate their marital status as “unmarried and both parents living together,” and you’ll answer the questions about both parents.
- If your parents are separated but live together, you’ll indicate their marital status as “Married or remarried,” and you’ll answer the questions about both parents.
- If you have a stepparent who is married to the legal parent whose information you’re reporting, you must provide information about that stepparent as well.
- The following people are not your parents unless they have adopted you: grandparents, foster parents, legal guardians, older brothers or sisters, and uncles or aunts
2. What are the obligations and/or tax benefits to the non-custodial parent when it comes to helping pay for college?
The key here is determining which parent has listed the child as a dependent on their tax return. If the non-custodial parent does not list the child as a dependent on their tax return, they are not able to take advantage of the educational tax benefits. If there is a situation where the non-custodial parent does not claim the child as a dependent, but the custodial parent does, then the custodial parent may be able to take advantage of the educational tax benefits on tuition paid for by the non-custodial parent.
Federal aid eligibility is not affected by income or assets of the non-custodial parent; however, child support and alimony received by the custodial parent is counted as assessable income when calculating the EFC (Expected Family Contribution) for the FAFSA. This is a notable difference compared to the 2018 tax reform changes for personal income tax filings where child support and alimony are no longer deductible to the payor nor taxable to the recipient.
Lastly, there are many private schools that will consider the non-custodial parent as a source of potential support. If you are in this situation, be aware that these schools may require a supplemental financial aid form from the non-custodial parent. This scenario will only affect the school’s private aid offering to the student and will not affect public aid on a Federal or state level.
3. What happens if one or both of the divorced parents remarry? Do stepparents have to report income on the FAFSA?
Yes. Assuming the child is living with the custodial parent, the stepparent that is married to them is required to report their income and assets as a source of support for college funding.
Another common follow-up question in this situation is “What if there is a prenuptial agreement excluding the stepparent from financial responsibility for education funding?” Prenups are not recognized for purposes of determining federal financial aid eligibility. Once the stepparent marries the divorced parent, he/she is are now considered to have accepted responsibility for the support of both the parent and child.
Don’t let the complexities of the college-funding conversation overwhelm you. It is my desire that you feel enabled and confident in helping your child attain their goals, no matter what life brings!