Dear Moneyist,
My ex-husband admitted to taking money out of our daughter’s 529 plan: $15,000 to pay legal fees. He had and still has numerous accounts with a few hundred thousand dollars which are savings and retirement plans. Is it legal for him to take money out of our daughter’s 529 plan if he had his own money to use?
That’s not all. In 2017, a judge ordered that he open a joint account with me for a $10,000 inheritance our daughter received from his dad when he passed away in 2016. He refused and, in December 2017, he bought a car. He told our daughter she could have a driver’s license in July 2018.
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He is a licensed broker. Is it legal for him to be taking money from our daughter and using it for his own personal gain? The $10,000 he put into a Chase account in her name with him as a joint account owner. Not as a custodian.
He said the 529 money is his since he put it into her account, although he may have taken money out of the 529 her grandfather had for her. He said his father told him the $10,000 was for a car for our daughter, even though all the grandchildren inherited the same amount of money.
New Jersey Wife and Mother
Dear Wife and Mother,
Your husband clearly has a lot of anger and he is using these accounts to wield it. For the record, I don’t agree with anything he’s done. There’s a blurry line between legal and ethical. Some of it you can fix, other parts may be beyond your control. He sounds like the child in this situation in his attempts to justify his behavior. I hear a lot of “it’s mine because…” But you don’t have to deal with his emotions. That’s why you got divorced. You only have to deal with the facts.
I have received many letters about such shenanigans. The mother who ran up $50,000 on credit cards registered in her daughter’s name, the husband who gave $300,000 to a religious cult despite protest from his wife and the wife who wanted to drain her bank accounts ahead of her impending divorce are just three choice letters that come to mind. You face two hurdles: Your legal/ethical rights and whether it is worth it to you or your daughter to take your ex-husband to court.
You may be out of luck on Count 1. “Legally, the owner of a 529 account is usually a parent who sets up and funds the 529,” says Jim Todd, a client adviser with Mercer Advisors in Boulder, Col. “Since the withdrawal was for non-higher education expenses, the IRS will levy taxes on any growth that was withdrawn and an additional 10% penalty for a non-qualified withdrawal from a 529 account.” One caveat: If he was instructed to fund this account per your divorce, you may have a case.
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Count 2 is different. A court order trumps whatever your late father-in-law did or didn’t say. (I don’t believe your husband.) “Since your ex-husband did not act as the judge ordered, there is definitely a legal consequence,” Todd adds. “ However, your daughter would have to sue her own father, which, in most cases, is very unlikely, in order to recover the damages caused by her father’s defiance of the judge.” Talk to a lawyer to see if you could act on her behalf.
You may, as your husband is a broker, have another option. If the 529 account was held at your ex-husband’s brokerage, that firm is responsible for supervising his activities, says Jeffrey Purdon, an Atlanta, Ga.-based certified financial planner. “A written customer complaint and a meeting with the branch manager would go a long way,” he says. “My guess is the firm would be quick to settle an issue like this and then the firm can recover [the money] directly from its employee.”
That would your ex-husband.
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