Legal Separation & Financial Aid

Paying for College
1

<p>I posted this in another thread ... but it was suggested to me I start my own thread here.</p>

<p>I'm new to this forum - I've been doing some financial scheming of late & reading about FAFSA (spare me any moral lectures) & learning about college costs/assistance.</p>

<p>We are married with a child who will enter college in Fall 2013 - our child is very smart with a 4.0 GPA ... but no other talents that may garner scholarship monies such as music, sports, ....</p>

<p>I make approx 70k in retirement benefits. Spouse makes approx 38k as a teacher ... but spouse wants to quit working also next year for health reasons and has not been teaching long enough (five years - she was a stay-at-home mom for many years) to have vested significantly in the State teachers retirement plan. Most of our savings are tied up in a 401k.</p>

<p>I've found the FAFSA penalizes us heavily due to my income ... but if only my spouse's income were considered is very generous (esp if not working full time)</p>

<p>Our house is paid for, but we plan to sell & move before or when our child finishes high school ... sale of the house will garner us between 200k & 250k. Our plan is to buy a smaller home near the ocean for about 150k and banking the rest (I see no reason to be penalized for having lived frugally & paying our house off). Then we plan to rent a large apartment or small house wherever it is our child ends up going to college. We will then split our time between our retirement home and where our child is going to school.</p>

<p>I have been considering the idea of obtaining executing a "legal separation" agreement and establishing my legal residence at our retirement residence (driver license, vehicle registration, utilities, State tax form) & my spouses legal residence at our daughter's college town.</p>

<p>Since we are in Texas which does not have a court mechanism for "legal separations" ... it seems we would have to have a private "separation agreement" drawn up by an attorney ... it may be possible to even have a "maintenance agreement" included which would allow us to split my retirement income to reduce each of our Federal income tax burden. (We would of course file as "Married Filing Separately" with spouse claiming our child as a dependent)</p>

<p>We are not interested of course in trying to do any kind of sham divorce ... but since we would be traveling a lot during this period of our lives (sometimes separately) and spending considerable time away from each other, I see no reason not to separate our incomes in this manner & thus shelter my retirement income from FAFSA calculations. (Divorce would be out of the question anyway as I need to keep both spouse & child on my retiree subsidized health insurance)</p>

<p>Any thoughts? (and again, spare me any moralizing)</p>

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<p>I think you’re thinking that a low EFC means generous aid. It doesn’t. </p>

<p>Also, your wife would have to report any money that you give for her and your D to live on.</p>

<p>I think this is a lousy idea…and yes this is a sham. What if everyone did this?</p>

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<p>No, I’m not going to spare you any moralizing. You are cheating the taxpayers and potentially the colleges your child will apply to. That is morally reprehensible.</p>

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<p>What type of schools are you aiming for? If she’s aiming for top schools, then they’re going to require the PROFILE anyway and then it’s a moot point because both of your incomes will be reported anyway.</p>

<p>With that GPA, she should look at merit aid. I have a combined parental income of around $22k and a good chunk of my aid comes from merit-based aid. All a low EFC guarantees is a Pell Grant- and you need a VERY low EFC for that.</p>

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<p>“Romanigypsyeyes”: In reply to your question … probably a “good” State university … UT or A&M … don’t know yet if they are FAFSA only or not (still learning about that) … (our/my new retirement residence will likely be in coastal Alabama or Florida btw)</p>

<p>(for you “moralizers” … we already spend plenty of time apart and we will be maintaining two residences when our child is in school … spouse plan to spend a lot of time wherever our child is living/going-to-school, and I plan to spend a lot of time wherever the boat is. Lots of people do lots of things to “tax advantage” and “structure” their assets & income (esp very wealthy people) for legal & tax purposes that are not considered “cheating” … I see no difference … that said, I’m not further interested in arguing that with anyone … I wanted to know how this might work out from a financial aid perspective)</p>

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<p>Romanigypsyeyes said: “All a low EFC guarantees is a Pell Grant- and you need a VERY low EFC for that.”</p>

<p>That’s a very interesting statement. How low?</p>

<p>Doesn’t it also impact “need based” aid from the schools themselves?</p>

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<p>Most schools do NOT have much aid to give away of their own. State schools largely depend on gov’t money to give away (taxpayer money). </p>

<p>All of these gymnastics will likely still result in you having to pay for your D’s education. </p>

<p>Also…the FA system is very much aware of these kinds of plans and can usually smell them out when no divorce is in the works. </p>

<p>And, again, your wife would have to report all moneys that you give to support the house she lives in, food, utilities, car, etc.</p>

<p>Are you each going to have your own car insurance plans? cell phone plans? etc? If not, your situation is going to get revealed for what it is.</p>

<p>The fact that you would be living apart anyway is irrelevant. Many married people have to live apart for valid reasons…military, jobs, etc. They aren’t considered to be separated.</p>

<p>If you want to pay less, have your D study for the SAT and ACT, do well, and qualify for merit scholarships.</p>

<p>EFC is a misnomer…it does NOT mean Expected Family Contribution. That is not true. It doesn’t mean that is all you have to pay.</p>

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<p>A Pell Grant requires a FAFSA EFC of $5500 or less. The Pell is prorated so that an EFC of $0 gets the full grant ($5500) and an EFC of $5500 gets almost nothing–maybe $200/year. </p>

<p>Both UT and A&M are FAFSA only schools; neither promises to meet full need.</p>

<p>There is Texas school aid estimator here:</p>

<p>[TEXAS</a> AID for COLLEGE](<a href=“http://collegeforalltexans.com/apps/CollegeMoney/]TEXAS”>http://collegeforalltexans.com/apps/CollegeMoney/)</p>

<p>If she is eligible, a Pell grant is part of need based aid and will be included in your daughter’s financial aid package along with a federal Stafford loan ($5500 for freshmen; $6500 for sophomores; $7500 for juniors & seniors). It’s likely the only aid she wil get from a state university unless she has something the school wants. (Academic achievement, athletics, URM, etc)</p>

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<p>@ MOM2COLLEGEKIDS: OK - I said I wasn’t going to go-there, but I will for just a bit.</p>

<p>If I’m gone half the year anyway (low-paid seasonal scuba instructor) … what’s the diff … so the separation agreement spells out “maintenance” and that’s deductible off of my return … we’d have actual separate addresses, file taxes separately & unemployed spouse’s tax liability would be minimal. (Actually getting a divorce would be a problem since I need to keep spouse & child on health insurance.) So what if I visit spouse for some extended periods & spouse visits me. Spouse sometimes visits me when I have instructing gigs out of country anyway. Separate car insurance, cell phones, addresses, etc OTOH - no problem … what is there to “sniff out” as you say?</p>

<p>If a family chooses to pay off consumer debt instead of their mortgage to better their financial aid profile is that immoral and a sham too? </p>

<p>If a grandparent holds school money in abeyance & child gets aid & takes out subsidized loans which grandparent pays off later is that cheating?</p>

<p>I see no difference with the “legal separation” thing - esp. considering we would actually be maintaining two address and living apart some of the time.</p>

<p>All of that aside … my intent in posing the original question though, was … is there any substantial gain to be realized by structuring ourselves as such … or will it really not be worth the effort?</p>

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<p>FWIW, while playing with the Texas Aid estimator, I noticed the state of Texas ONLY considers a parent single if legally divorced or widowed. The definitions section explicitly states that parents who are “separated” are considered “married” for purposes of financial aid–even if they file their taxes separately.</p>

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<p>I think you have some misconceptions about how financial aid works.</p>

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<p>Someone should correct me if I am wrong but I don’t think either of these actions would affect the outcome of the FAFSA profile. FAFSA doesn’t take into account consumer debt or the size of one’s mortgage.</p>

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<p>I’m not sure what the point is with this example but I have heard of this scenario and I don’t consider it cheating. It’s within all the rules and there isn’t even a net advantage gained with paying back a loan. It was still just a loan.</p>

<p>You mentioned a boat, is that a boat you own?</p>

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<p>If you and your wife are married…honestly for financial aid purposes, it doesn’t matter at ALL where you live…unless you plan to LIE and say you are legally separated. As a married couple, BOTH parents’ financial information is REQUIRED on the FAFSA form. </p>

<p>If you are legally separated (you know…someone is going to have to sign an affidavit on your behalf to verify this…are you expecting THEM to be part of your scam too?) that is one thing…but just living somewhere else for part of the year doesn’t matter…unless you ARE really separated from your marriage…which you say you are NOT doing.</p>

<p>Clearly you are trying to figure out a way to game the system so that YOUR income is not counted on your daughter’s FAFSA. </p>

<p>If it were me, I would be spending my time finding some target schools where she might garner some significant merit aid. If her stats are THAT high…(including her SAT scores) she could get a full tuition scholarship at U of Alabama, for instance.</p>

<p>Please…do not game the system…you are setting your child up for a very tentative situation. If you are found out…and believe me with everything computerized these days…it wouldn’t take much…this constitutes FRAUD…with rather stiff penalties.</p>

<p>If your daughter is selected for verification, for example…your tax returns would be requested…you and your wife would both need to file as married/filing either separately or together. Just your tax return will be a red flag to the school.</p>

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<p>* while playing with the Texas Aid estimator, I noticed the state of Texas ONLY considers a parent single if legally divorced or widowed. The definitions section explicitly states that parents who are “separated” are considered “married” for purposes of financial aid–even if they file their taxes separately.*</p>

<p>Good for Texas! Don’t mess with Texas…they’ll smell out a scam before you can think of one. </p>

<p>the bottom line is that it doesn’t matter if you live in separate residences…for all intents and purposes you will still be married. As you say, you’ll be visiting each other. Will you still call her “your wife” or what? </p>

<p>Call this what it is…a separation for PURELY financial aid purposes. </p>

<p>Gonna have her go on food stamps, too? What’s next?</p>

<p>*If a family chooses to pay off consumer debt instead of their mortgage to better their financial aid profile is that immoral and a sham too? *</p>

<p>??? Neither way affects FAFSA…what are you talking about?</p>

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<p>@ PEA

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<p>Perhaps – that’s why I’m here.</p>

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<p>Someone should correct me if I am wrong – I thought mortgage payments do affect FAFSA?</p>

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<p>It’s currently owned by a friend’s llc.</p>

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<p>Mortgage payments do not affect FAFSA at all. Debt is a personal choice.</p>

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<p>The mortgage on your primary residence is NOT counted on that FAFSA at all…but as a married couple…if you guy a SECOND home (for you to live in…in say Alabama or wherever)…the EQUITY on THAT second residence would be considered an asset on the FAFSA.</p>

<p>Consumer debt (loans on cars, boats, credit cards etc) are not counted at all on the FAFSA…considered consumer choice to have debt.</p>

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<p>@ THUMPER1

If we have a written separation agreement and we maintain and can document separate residences & finances … where’s the lie?</p>

<p>

Well, of course. If a noncustodial divorced parents income can be exempted from financial aid calculations, I see nothing wrong with legally structuring myself to do the same. </p>

<p>Corporations & wealthy people “game the system” all the time … so long as we are within the confines of the law & regulations … how is that bad?</p>

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<p>So what. If we have the documentation to back the separation up (written separation agreement, documented residences in separate states, etc) what is there to fear?</p>

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<p>Good point. We’re thinking a rental in the college town anyway.</p>

<p>aha - just learned about the mortgage payments not counting no matter what they are … good thing ours is paid off!</p>

<p>It’s not about the mortgage anyway … it’s about getting my retirement income removed from the FAFSA calculations</p>

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<p>Well…thank goodness that Texas doesn’t put up with this nonsense. You’d have to get divorced for Texas to only consider your wife’s income.</p>

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<p>mymail…you are asking the posters on this forum to give you advice to commit fraud. I’m sorry but there it is…plain and simple. You have stated yourself that you will only be doing this to “structure” your financial aid. That being the case, whomever signs your affidavit verifying your “separation” is part and parcel of your fraud plan.</p>

<p>And again I say…MARRIED parents can have FIVE different residences in five different states…it doesn’t matter…BOTH have to put their financial info on the FAFSA form…OR IT IS FRAUD.</p>

<p>Please do not continue to ask for the folks on this forum to give you support for a criminal action (that is what FRAUD is).</p>

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<p>mymail…After reading through the thread I have a couple of things that come to mind.</p>

<ol>
<li><p>Congratulations on what has obviously been some wise financial management on your and your wife’s part to date. To have a fully paid off home which could net you $200K-$250K while still having been able to contribute to your 401K shows you are able to manage money and make wise financial decisions.</p></li>
<li><p>If you follow the plan you describe in your OP invest the $100K-ish anticipated extra cash (following the purchase of your retirement home) in the best possible investment available to you…YOUR DAUGHTER!!</p></li>
</ol>

<p>You find yourself in the extremely enviable position of potentially being able to pay cash outright for your intelligent and talented child’s education, yet you waste time, energy and brain cells trying to find a way to “maximize” the system (potentially at other’s expense in the form of their tax dollars). As a parent, I can’t say I’d consider having the luxury of being able to fund my child’s education as being “penalized”.</p>