Divorce and the FAFSA

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By Mark Kantrowitz

September 11, 2020

If a dependent student’s parents are divorced, separated or never married, only one parent is responsible for completing the Free Application for Federal Student Aid (FAFSA). The choice of this parent can have a big impact on eligibility for need-based financial aid.

Which Parent Completes the FAFSA?

A student’s legal parents may include the student’s biological and adoptive parents. Legal parents can also include a parent who is listed as a parent on the student’s birth certificate, even if they are not a biological or adoptive parent.

Legal parents do not include grandparents, aunts, uncles, siblings, foster parents, legal guardians, widowed stepparents or other relatives unless they have legally adopted the student.

When a student’s legal parents are divorced, separated or never married, one parent is the custodial parent and one parent is the non-custodial parent. The custodial parent is responsible for completing the FAFSA. Marital status is based on the date the FAFSA is filed.

An informal separation can count as a separation, if the parents do not live together. The parents are considered to be living together if they live in the same house, even if they live on different floors. Temporary absences for work, school, illness, military service or incarceration do not count as a separation.

The choice of the custodial parent depends on where the student lives, not necessarily which parent has legal custody.

The custodial parent – the parent who completes the FAFSA – is the parent with whom the student resided the most during the 12-month period ending on the date the FAFSA was filed. Normally, this is definitive, since there are an odd number of days in the year.

During a leap year or a recent divorce, when there are an even number of days in the year, it is possible that the student lived with both parents equally. Then, the parent who completes the FAFSA is the parent who provided more financial support to the student during the 12 months ending on the date the FAFSA was filed.

If neither parent provided more financial support, then the custodial parent is the parent who provided more financial support during the most recent calendar year during which parental support was provided. If the parents split the financial support equally, then guidance from the U.S. Department of Education indicates that the parent with the greater income is responsible for completing the FAFSA.

What If the Parents Live Together?

If a student’s parents are divorced, separated or never married, but live together, they are treated as though they are married on the FAFSA.

This means that both parents are counted in household size and the income and assets of both parents must be reported.

The FAFSA depends more on the parents’ relationship with the student than the parents’ relationship with each other.

If the parents are divorced and one or both of them have remarried, and all of them live together, the parent and stepparent (if applicable) who provide more financial support to the student are responsible for completing the FAFSA. Financial support provided by the other parent is reported as child support or as untaxed income to the student, as appropriate.

What about Stepparents?

If the custodial parent has remarried as of the date the FAFSA is filed, the stepparent’s income and asset information must be reported on the FAFSA. This is a matter of federal law, so prenuptial agreements are ignored. (Prenuptial agreements may still affect which parent pays for college costs.)

The statutory citation for this requirement is 20 USC 1087oo(f)(3).

The U.S. Department of Education has issued guidance that says that there are no exceptions to this rule.

The stepparent’s income during the base year (the prior-prior year) must be reported even if the custodial parent and stepparent weren’t married at the time.

The stepparent’s other children, if any, are counted in household size if the stepparent and custodial parent provide more than half of their financial support, even if they don’t live with them. These children are also counted in the number of children in college if they are enrolled in college at least half-time.

What if the Custodial Parent Dies?

If the custodial parent dies, the non-custodial parent is responsible for completing the FAFSA, even if the student is still living with the stepparent.

A stepparent is considered a parent for federal student aid purposes only for as long as the stepparent is married to the custodial parent, unless the stepparent has legally adopted the student. When the custodial parent dies, the stepparent is no longer considered a parent for federal student aid purposes. For example, a stepparent who has not adopted the student cannot borrow a Federal Parent PLUS loan for the student after the custodial parent dies.

If the non-custodial parent cannot be located or if the non-custodial parent has not had any significant contact with the student or provided any financial support to the student, the college financial aid administrator might do a dependency override. A dependency override changes the student’s dependency status from dependent to independent. Parent information is not required for an independent student.

When the custodial parent dies, any financial support provided by the stepparent is reported as untaxed income to the student on the student’s FAFSA.

Can the Parents Choose Which Parent Files the FAFSA?

To some extent, divorced or separated parents can choose which parent is responsible for completing the FAFSA by changing the student’s living arrangements.

It is best that the parents go back to court to modify the child custody agreement, so that it matches the actual living arrangements. Otherwise, the college financial aid administrator will question the selection of the parent (and stepparent) with lower income as the custodial parent.

Reporting Alimony on the FAFSA

The Tax Cuts and Jobs Act of 2017 changed the tax treatment of alimony paid and received effective starting in 2019. This change affects the FAFSA in 2021-2022 and subsequent years, since it affects how alimony payments are included in adjusted gross income (AGI).

Alimony payments from divorces that occurred in 2019 or a later year are not deducted from the payer’s income and are not included in the recipient’s income.

Alimony payments from divorces that occurred in 2018 or an earlier year are reported as before (i.e., deducted from the payer’s income and included in the recipient’s income), unless the divorce decree is changed after December 31, 2018 to expressly exclude the alimony from the recipient’s income.

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