GARY SCHLESINGER
AMY GERTLER
MATTHEW KAPLAN
RACHEL HEYMAN
JUDGE JANE D. WALLER

FACT PATTERN COURTESY OF THE ENTIRE GROUP

WRITTEN MATERIALS COURTESY OF GARY L. SCHLESINGER

PRESENTED AT THE LAKE COUNTY ILLINOIS, BAR ASSOCIATION

FAMILY LAW SEMINAR

FEBRUARY, 2005.

College Education Petitions

There is an excellent discussion of this issue in the notes following 750 ILCS 5/513 in the Muller Davis book, The Illinois Practice of Family Law by Thompson West publishing company. There are also many cases listed in the annotations to the statute. It is not the purpose of these materials to be a definitive treatise of the law of this issue, but merely to alert the practitioner to some issues to consider.

A court in Illinois has the power to order a contribution to college education expenses from parents for children whose parents are divorced, legally separated or never married. 750 ILCS 5/513.

The statute contains a broad definition of what is included in college expenses. I will not recite them all here. Be aware that it is more expansive than merely tuition, room and board and books.

The petition may be filed by either parent but not by the child, unless the child is suing as a third party beneficiary to enforce the agreement of the parents that they provide college money for the child. Orr v. Orr. 228 Ill.App.3d 234, 170 Ill.Dec. 17, 592 N.E.2d 593 (1st Dist. 1992)

The courts determine who pays how much based on the respective financial recourses of the child and the parties. If recourses include income and assets, what happens when one parent has high income and the other parent has much greater net worth? One court held that apportioning college in ratio of the parents’ income was reversible error. IRMO Stockton, 169 Ill.App.3d 318, 119 Ill.Dec.817, 523 N.E.2d 573 (4th Dist. 1988) Unfortunately, there is no case saying that income trumps assets or the reverse. The appellate court decisions are not much help in sorting out the income vs. asset dilemma.

The child has an obligation to contribute to the cost. Getting scholarships, loans, using savings, earnings from employment, can do this. Larsen v. Larsen, 126 Ill.App.3d 1072, 82 Ill.Dec. 103, 468 N.E. 2d (3d Dist. 1984).

One case says that one factor to consider is the cost to attend a state supported school, rather than a private school. Greiman v. Friedman, 90 Ill.App. 3d 941, 46 Ill.Dec. 355, 414 N.E.2d 77 (`1st Dist. 1980)
The parent with the lower income should claim the child as an exemption for tax purposes. That may result in some tax savings for that parent that could be applied to college costs.

The Hope Scholarship Credit is a maximum of $1,500 per year for the first two years of post high school education. The lifetime earning credit is available for any year in which the Hope credit is not claimed.

The Hope credit is 100% of the first $1,000 of tuition paid and 50% of the next $1,000 of tuition paid. It does not apply to non-tuition items such as room and board, books, medical expenses, or, transportation. It is not available to be used if there are no such expenses. So, if there are scholarships and grants that pay the tuition, then the credit cannot be taken against the tuition paid by the scholarships and grants. The credit is available for tuition payments to a school eligible to participate in the Department of Education student aid program. A student is eligible if he or she has not completed 2 years of school, is at least a half time student and has not been convicted of a felony drug offense for possession or distribution.

There are income limitations. For single taxpayers, the phase out begins at adjusted gross income of $41,000 and is gone at $51,000. For joint filers, $83,000 and $103,000.

The result of this is that if the client or an ex spouse has income below the threshold, the tax exemption for the first year of college is worth the $1,500 credit, plus the $60 Illinois taxes saved, plus the marginal tax rate times $3,100. If the marginal rate is 25%, the exemption is worth $3,100 times .25, or $775.00 plus $60 plus $1,500 or a total of $2335.00. So have the parent with the smaller income claim the exemption for the first two years of college. Have that parent pay the first $2,335.00 of college expense and then divide the balance of the college expense pursuant to 750 ILCS 5/513. Do not ignore or forget about the exemption when dealing with the college issue!

The lifetime credit is available for a student taking one or more courses at an educational institution and for whom the Hope credit is not taken that tax year.

Be careful when giving advice about this. This credit needs to be coordinated with the withdrawals from educational savings accounts. It is enough for divorce practitioners to know to ask the questions about this credit and then either do the research to give the advice or refer the client to a tax advisor with more knowledge. Sec. 25A IRC and Master Tax Guide sec. 1303.

The FAFSA form.

FAFSA is Free Application for Federal Student Aid. It is to be completed by the parent with whom the student lives, not necessarily the person with the exemption, not the legal custodian. The form is available on line at www.fafsa.ed.gov. This is the one form that is used by all colleges to determine financial need. It should be filed as soon after January one as possible. If you do not have the prior year’s W-2 and 1099 forms, then use the ones from the year before that.

The form considers both income and assets but the allocation is not explained. The income and assets of the household of the household in which the student lives are considered. So, if the custodial mom marries a man with substantial income or assets, that income and those assets are in the equation. There is a second district opinion, which holds the same thing: IRMO Drysch, 314 Ill.App.3d 640, 247 Ill.Dec.409, 732 N.E.2d 125 (2000).

The purpose of the form is to enable the government loan programs to determine the expected family contribution or EFC. That number is sent to each school the applicant chooses. The school uses its cost for education minus the EFC to determine the financial need of the student. The need is available to be met by financial aid. This does not mean that all the need will be met by financial aid. Because of all this, it may make sense to have the custodian be the parent with fewer assets and lower income. {Credit for this FAFSA information goes to my oldest daughter, Emily Kruse, admissions counselor at Drake University, Des Moines, Iowa. Read about her and see her picture at: www.choose.drake.edu/admissions/counselors/kruse.asp}.

The rest of this information on the FAFSA comes from Heather Andersen at the Iowa Student Aid office, a friend of Emily’s.

Income is way more important than assets. If the household income is under $50,000, then assets are not considered at all. If the tax return does not contain a Schedule D, which is where capital gains and losses are reported, then assets are not considered. If there is a Schedule D, then 12% of the assets are to be used for the family contribution.

If there are assets in the name of the student, then 35% of them are available to meet the family contribution. Therefore, use the money in the child’s name first and file the FAFSA form annually.

Once the family contribution is determined, the school will determine how much and what kind of aid to give to cover the balance of the education costs. It could be scholarships, need based grants, work-study money, or student loans. The EFC can be covered by parent loans.

There are two parent loan programs. One is Parent plus. This is Federal government money distributed through the Department of Education. Payments are not deferred and must be made beginning two months after the second installment is disbursed. Installments are disbursed for each semester. So, the first payment is due in March. The loan will be amortized over ten years. The interest rate floats and is adjusted annually up to a cap of 9%. Currently it is 4.17%. This is a parent, not a student loan.

The other loan program is the Federal Family Educational Loan Program (FELP). This is also government money but it is made available to banks, which set the rate and repayment terms. Since the banks are competing with each other, there maybe better terms available. This is also a ten-year amortization. This is a parent, not a student, loan.

Loans to an individual that need not be repaid and gifts are available to be used as income to set child support. IRMO Rogers, Ill. Sup. Ct.. Nov. 2004.

2004 Ill. LEXIS 1676
A trial court is vested with the authority to order a parent to provide life insurance for the benefit of his children. (In re Marriage of Dulyn (1980), 89 Ill.App.3d 304, 310, 411 N.E.2d 988, 993.) We find that the court did not act beyond its authority in ordering Jonathan to provide the life insurance. In re MARRIAGE OF OSBORN,
206 Ill. App. 3d 588; 564 N.E.2d 1325; 151 Ill. Dec. 663 (5th Dist 1990)