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Professional Judgment
 
Divorce and Separation

When a married student or a dependent student's parents get divorced or separated before the application date, it is often necessary to separate out the income of the student or the custodial parent from a joint income tax return.

Financial aid administrators should ask for a copy of the divorce decree or separation agreement, as sometimes the document will contain language that specifies an appropriate treatment for the income. Otherwise, the financial aid administrator should first try to separate income that is clearly attributable to each family member (i.e., from W-2 statements showing the earnings of each). Then any investment earnings should be split either according to the titling of the account (i.e., joint accounts are split evenly) or the division of assets. If there is insufficient information to properly divide an asset, an even split is appropriate. Taxes paid can either be calculated using the tax tables as if a separate return were filed (preferred method) or by prorating the actual taxes paid according to the percentage of joint AGI attributable to the parent.

Financial aid administrators occasionally encounter parents who claim to have been separated or divorced on the date the FAFSA was completed, but to have reconciled shortly afterward. Often these parents are trying to game the system on a technicality. Most financial aid administrators will treat such parents as married. As noted in Parent Remarries After Application Date, household size and number in college can be updated for changes in the parent's marital status after the application date, and financial aid administrators may use professional judgment to include the income and assets of the "new" spouse. Whether the parents were temporarily separated on the application date is potentially irrelevant, since the financial aid administrator has the option of basing his or her decision on the parents' marital status as of the verification date. The financial aid administrator should ask for a copy of any divorce decrees, legal separation agreements, marriage certificates, and evidence that the couple maintained separate households before making a decision. The financial aid administrator should also ask for the date the separation started and ended and whether it was a legal separation or an informal separation.

Rather than focus on technicalities, the financial aid administrator might want to ask whether the couple will likely remain married for the remainder of the award year. If the financial aid administrator believes the answer to be yes, it is reasonable to treat them as married for need analysis purposes. If the couple is now, in fact, divorced, it is reasonable to include only the custodial parent's financial information.

According to the verification guide (see below), separation can include either informal separation or legal separation. There are two main types of separation. Both involve a cessation of cohabitation by husband and wife. Neither dissolves the marriage. A legal separation involves the court system and the issuing of a court order. Rules relating to legal separation vary from state to state. A legal separation usually also resolves any financial claims, such as financial support issues. An informal or trial separation does not involve a court order, merely the cessation of cohabitation.

(Note that since separation does not dissolve a marriage, a student who is separated is still considered married for the purpose of determining dependency status. Such a student should answer "Yes" to the question "As of today, are you married?". See, for example, the bottom of page AVG-24 of the Verification Guide. This is different than the treatment prior to 1992, when a separated student was not considered married for independent student status purposes.)

In some states a couple can continue to cohabit after a legal separation. But in no circumstances may a couple continue to live in the same house and have an informal separation -- separate bedrooms doesn't cut it. In some states a legal separation is part of the process of obtaining a divorce, as a kind of enforced "cooling off" period.

A written support agreement is required for one spouse to take a deduction for payments made to the other spouse.

An informal separation is very difficult to document, and might not have any documentation (e.g., one of the spouses moves out of the house to live with a friend or relative). Since informal separation does not require any kind of formal documentation, it is prone to abuse, with parents claiming to be separated solely to obtain additional aid for their children's education.

For documentation of a legal separation, financial aid administrators should require a copy of the court order. For documentation of an informal separation, financial aid administrators should require evidence that the parents were living apart, such as rent checks, copy of the leases, copies of utility bills, photocopies of driver's licenses showing different addresses, a letter from a third party certifying that the spouse was living with them, etc. Be wary of sham arrangements, in which the husband or wife is conveniently absent from the household just for the week in which the FAFSA is submitted (e.g., one spouse goes off on a business trip and indicates that it is a separation on the FAFSA, providing hotel receipts as documentation) and reconciles immediately afterward.

The maintenance of separate households is a key concept for need analysis. For example, when a student's biological parents are divorced, the custodial parent is identified as the parent with whom the student lived the most during the past twelve months. Only when the student didn't live with one parent more than the other is the determination based on financial support. So separate households are considered primary criteria and financial responsibility secondary.

Since an informal separation is prone to abuse and doesn't require separate finances or address support issues, financial aid administrators should apply extra scrutiny to such situations. At least with a legal separation the parents have to jump through a few hoops and can provide clearcut documentation in the form of a court order. Possible considerations can include the duration of the separation and whether the separation began conveniently close to the FAFSA application date. Some financial aid administrators require a minimum separation of at least six month's duration, the same standard used by the IRS for head of household filing status.

Verification Guide (Page AVG-31): Separation of the student's parents or the student and spouse
A couple doesn't have to be legally separated in order to be considered separated. The couple may consider themselves informally separated when one of the partners has left the household for an indefinite period of time. Usually a married couple that lives together can't be considered informally separated. However, in some states, a couple can be considered legally separated even if they still live together. If the couple's state allows this, and they are legally separated, then they are considered separated though they are still living together. For a dependent student, use the same rules as for divorce to determine which parent's information must be reported.

Eight states do not have a concept of "legal separation": Alaska, Delaware, Florida, Georgia, Idaho, Mississippi, Pennsylvania and Texas. In these states one can be single, married, widowed, or divorced, but not legally separated. As such, all separations in these states are informal. (It is not uncommon to prepare a separation agreement to specify such matters as division of property and support and even custody prior to a divorce decree, but such a separation agreement does not have any special legal standing beyond being a legally binding contract.)

See also Independent Reverting to Dependent.

 

 
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