Getting divorced (on paper) for financial aid?

Paying for College
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<p>RedCod's post about getting married for financial aid reminded me of something my husband & I were discussing recently. </p>

<p>(Let me clarify that we are not actually considering doing this. We were just curious whether anyone has. My husband is certain that at least a few people have probably done it.) </p>

<p>Like many households, ours is lopsided, with one spouse making much more than the other. We currently pay about 25K out of pocket for S1's tuition and will probably end up paying about the same for S2 when he heads off to school later this year. They both will be attending a school that bases financial aid on the FAFSA, meaning only one parent's income would be counted if the parents are divorced. In our case, if the lower-earning spouse's income was all that mattered, the kids would probably get the maximum aid. </p>

<p>So I'm wondering what's to stop people from getting divorced (on paper) in order to get financial aid? An uncontested quickie divorce costs a few hundred bucks, so financially speaking that would be a drop in the bucket compared to the tuition savings. And it's not like their "divorced" status would be common knowledge. Around here, divorce filings aren't put in the newspaper, and many couples get divorced without people knowing about it. </p>

<p>Like I said, I would never actually do this, but just wondered if there are people out there who have. Instead of a "marriage of convenience," I guess this would be a "divorce of convenience." :-)</p>

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<p>If the divorced couple is still living together, then the custodial parent would end up being the one earning the MOST income (per FAFSA guidelines). If the couple had joint and equal custody the same would be true AND the couple would have the added expense of a second home (and utilities, furniture, etc).</p>

<p>IF the non-custodial parent (the one with the big bucks) is paying ANY bills (e.g. mortgage on the house, car payments, utilities, insurance) that the child benefits from...this MUST be reported as well...as does child support.</p>

<p>In addition, this could affect who is covered and how you are billed for things like health insurance, homeowners, and car insurance. </p>

<p>If there is property that the "divorced" spouses own...there would have to be some settlement of that in the divorce as well. </p>

<p>I'm sure there must be someone out there gaming the system in this fashion...but I do believe there ARE some considerations that should be thought about.</p>

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<p>Well I've heard of people getting divorced so one of the people could get medicaid coverage. </p>

<p>I am a paranoid person. What if your FAFSA was verified and your tax returned showed you were lying (you'd have to have filed a "head of household")</p>

<p>I'm so clean I squeak</p>

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<p>Most FAFSA only schools don't meet 100% of need. If yours does it would clearly work. Hard to believe they would even ask for a divorce certificate though those who've applied for aid can correct me if wrong. I'd say just starting to file taxes separately would make this easy for lots of people. Wonder how/if they catch these loopholes.</p>

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<p>We had a thread here a while ago asking for anyone who knew of schools that were FAFSA ONLY (no school form which also tends to ask for non-custodial parent info) that met FULL NEED. No one knew of any school that did this.</p>

<p>Sorry...I'm with swimcats...just be honest. If you are ready for a divorce...get divorced. If not...don't.</p>

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<p>If the couple were legally married but separated (actually separated) they could file married separate or one could file head of household if children are involved. If they were legally divorced, one would have to file as single and the other could file either single or head of household, unless the divorce decree allotted both parents to split the children....then each could file head of household. </p>

<p>In order for it to "work", all documents would have to reflect the same marital status: tax forms, FAFSA, bills, employment forms, etc. Everything for one parent would need to be changed.</p>

<p>Key would be that both people would have to maintain separate households, which would be more costly than any amount of aid one could receive.</p>

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<p>I knew two couples that got divorced in their oldest child's junior year of college just for that reason. I don't know how it turned out. I did not keep track of them. But it seemed like a pretty sleazy thing to do to me.</p>

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<p>Thanks, these are all very good points that I will relay to my husband. I think what got him thinking about it is that in our case it would probably be fairly easy. We own a duplex with one unit currently vacant (it has been for years and will be for the foreseeable future) so we are already maintaining two properties and have two addresses. As for the tax aspect, if the lower-earning spouse filed as head of household they would (in our case) qualify for tax breaks such as the earned income credit, which would help offset the tax bill for the other spouse. </p>

<p>While I agree that it's an unethical thing to do, I suspect it's very unlikely that you'd get in trouble if everything was kosher on paper. I've heard of cases where the govt. will try to investigate a sham marraige - such as those in immigration situations - but I've never heard of anyone trying to investigate whether a divorce is legit or not. </p>

<p>However, I have enough trouble trying to maintain a legit marriage -- I don't think I would have the time or energy to even contemplate a fake divorce :-)</p>

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<p>Yes, it can be done. However, keep in mind that in order to benefit from this, the parent with the lower income would have to make a low, low amount of money and have few assets to even qualify for the Pell where the maximum award is less than $5K. The other guaranteed benefit would be a subsidized Stafford loan for the student. That's an awful lot of trouble and expense for a little bit of money. There can be other consequences for being in a separated status that may not be worth the trouble. </p>

<p>Where you can get into trouble is if you are audited for tax purposes and the federal government suspects a sham since there are tax implication for being separated as well, that may be worth much, much more than financial aid for college. In our case, if I pretended to be separated, we would do much better in taxes if we split income and assets the right way. But that would be tax fraud.</p>

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<p>Would none of this count as fraud? Just curious, because I honestly don't know, but it seems like you would be gaming the system for the most money possible.</p>

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<p>Yes it could be counted as fraud. Tax fraud which is a big issue.</p>

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<p>This makes me sick. I went through a difficult divorce. I hope if you get caught they kick your kid out of school.</p>

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<p>I have neighbors who did this. Before their daughter began college they divorced because they figured it would benefit her in terms of financial aid. I am not so intimate with them that I had any in depth, detailed conversations about how it would work, but they were open about why they were divorcing. The woman made an extremely low income, the dad also had a modest income but he had a private business with assets and such. They separated and then divorced. He moved in with some friends that had a large place where everyone chipped in on expenses -- both the husband and wife came from a background of communal living prior to having their daughter. After they "split up" I did see his car over at the house pretty much everyday.</p>

<p>After a year or so, though, he stopped coming around. I'm not sure what happened. Next thing I know the wife had a new boyfriend (I heard the husband had moved in with someone else too), and both were back to living in quasi-communal (but separate from each other) households.</p>

<p>I thought maybe they almost unconciously used the financial aid strategy to make a big mid-life change... a change that maybe one or both of them kind of wanted for other reasons. But I don't know for sure.</p>

<p>Their daughter graduated from college several years ago now. The wife still lives in the house here in my neighborhood with a number of other revolving-door roomates. I haven't seen the husband in a few years now. Actually I haven't even seen the daughter come back to visit in quite some time.</p>

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<p>wow that is really sad!</p>

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<p>From what I've heard so far, everyone that has tried this is really happy. Why wouldn't you want to try this!?</p>

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<p>Well, I don't know if my neighbor (and former neighbor) are sad exactly. They may both be much happier. I'm not sure the marriage is one that I would have wanted to be a part of... but like I said, these are not close confidantes of mine, so I don't know the 'inside story', so to speak.</p>

<p>It was just interesting, and I had occasion to think of it again because of this thread.</p>

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<p>Why wouldn't one want to try it? Because the penalties of being prosecuted for fraud by the IRS and Department of Education are too substantial. Even though the divorce may be legal, if the other parent is spending any time in the house, then it is fraud, plain and simple. $20k fine and/or time in prison...stiff penalties to try to get a little free money.</p>

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<p>There are many couples who would benefit financially by filing taxes as separated. If there are two or more dependents they can be split between them for tax purposes and each parent can then get extra exemption as a single parent. Also income can be allocated so that more can be taxed at the lower levels. College financial aid is just a drop in the bucket of what financial benefits that can be realized doing this. But it is tax fraud.</p>

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<p>Fraud and jail time cancel out any benefit you get from actually saving money on taxes. Just me, I don't think many CCer's are up for jail. Not only is the environment fairly hostile and unfriendly, I've heard the dorms suck, and the kids don't play well with others. Plus, it isn't NEAR selective enough for my tastes. They'll take anyone with a criminal charge!</p>

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<p>lol Irish, that is sooo true...it is worse than having a house full of teenagers, I hear.</p>