United States: NJ Court Finally Recognizes The Economic Realities Of Parental College Contributions

Last Updated: June 20 2014
Article by Eliana Baer

It all started with the 1982 Supreme Court case of Newburgh v. Arrigo.

That is the case that lawmakers, judges and attorneys alike point to when they are asked the age-old questions "why do divorced parents have an obligation to contribute to college, but intact parents do not?"  Eric Solotoff blogged about this conundrum on March 13, 2014 when Rachel Canning's story hit the news (remember – that teen who sought and failed to compel her married parents to contribute to her college education?).

In addition to the factors it sets forth that a court must consider in allocating college contribution, a main takeaway from Newburgh is as follows:

In general, financially capable parents should contribute to the higher education of children who are qualified students. In appropriate circumstances, parental responsibility includes the duty to assure children of a college and even of a postgraduate education such as law school.

The thoughts conveyed by Newburgh – that college is a necessity – have been echoed throughout the nation.  In a 2013 HuffPost/YouGov poll, 53 percent of respondents agreed that a college education was necessary in order to get ahead in life, compared to just 28 percent who said it was not.

Since Newburgh, it has become axiomatic in New Jersey that parents must split in some fashion – i.e. not always 50/50, but full contribution allocated between the parents – their children's college education upon divorce.  It became obligatory, the right of the child, just like child support for each child whose parents separated.

Newburgh became even more oppressive for some when in 2000, Finger v. Zenn overturned the so-called "Rutgers Rule" set forth in 1968 in Nebel v. Nebel, which limited a parent's mandatory contribution to the amount which would have been required to send the student to a state university such as Rutgers.  Suddenly, parents were faced with astronomical college tuition obligations to costly private or ivy league universities.  These stresses were only heightened as college tuition continued to rise through the early 2000s.

But in recent years, particularly during the recession, and with the skyrocketing costs of private universities, this rule of financial contribution has become a rule of potential financial ruin.  I have heard and observed clients in distress at the prospect of paying for college.  When there is not enough money to go around for even daily expenses, how could a court mandate that college takes priority?

Well, a new superior court case, published on June 13, 2014 – Black v. Black – tackles these very interesting and real issues head on.  The case presented three legal issues regarding a divorced parent's obligation to contribute to the cost of a child's college education, when he has previously agreed to do so in a marital settlement agreement:

1.         What happens when there is a damaged relationship between a college-age student and a parent?  Should the parent still be obligated to provide ongoing financial assistance?

2.         Whether a parent should be obligated to pay for the cost of an expensive private college over a more modestly priced state school; and

3.         Whether the court can consider a student's younger siblings of relatively close age who are likely to attend college in the near future as part of the college contribution analysis.

In this blog, I am only touching upon the last two inquiries.  The first one – the relationship between the contributing parent and the college student – will be a topic for a later blog.

One of the financial hurdles immediately recognized by the court head on in this case was that there was not a whole lot of money to go around.  The custodial mother was imputed an annual income of $20,000 while the non-custodial father was imputed an annual income of $60,000.  The father agreed to pay the mother $300 per week in alimony, along with child support under the New Jersey Child Support Guidelines for three children, who at the time of the divorce were 16, 13 and 10.  Additionally, the parties jointly stipulated that they would share in the cost of their children's future college costs.

In the years that followed, there was a breakdown in the relationship between the oldest child and the father, however, the relationship with the two younger children remained intact.

In 2012, the oldest child graduated from high school and was accepted into Rutgers University at an annual cost of $12,000, most of which would be covered by grants, scholarships and loans.  The parties disagreed as to the amount of contribution from each parent, with the mother apparently requesting that the father contribute the vast majority of the uncovered costs.  It appeared that the father's main objection centered around the child's unwillingness to repair their relationship.

As a result of the disagreement, the father refused to contribute, leaving the mother to raise $4,000 for the child to attend his freshman year.

The child exceled during his first year of study.  At the conclusion of his freshman year, the child set forth his desire to transfer to the University of Miami – an out of state, private institution – so that he could pursue a major in Marine Biology.  The price tag for this transfer: $55,000 per year, less $33,000 in estimated financial aid, leaving an uncovered balance of $22,000 per year.

In assessing the father's college contribution, the court very closely considered "the availability of colleges and universities which are significantly less expensive, and thus more reasonably affordable for some parents, than a student's school of 'top choice.'"

In examining the issue, the court specifically stated that "[t]he case of Finger v. Zenn...does not hold to the contrary."

The court said that Finger only stands for the proposition that the family court is not prohibited from ordering a non-custodial parent to financially contribute to a child's college costs in an amount exceeding the cost of attendance at a state college.  It specifically rejected the interpretation some courts have espoused that when a student seeks to attend a private university, the comparative cost of tuition at Rutgers or another less expensive state college is, as a matter of law, immaterial to the analysis.

Poignantly, the court recognized:

In intact families, where mothers and fathers address such issues outside of divorce court, the comparative expenses and affordability of tuition at different colleges is usually a significant factor for consideration by financially responsible parents and students alike. The issue of cost is no less important in families of divorce, particularly in cases where neither parent can afford a blank checkbook approach to education.

Recognizing the above, the Court came to the conclusion that regardless of what school a student personally wishes to attend, no parent should be expected to contribute more than he or she can reasonably afford.

The Court then went on to examine another financial reality posed by the parties' situation: when there are other, younger children in the family, who are good students and who are relatively close in age to an older, college-age sibling, this can be a relevant factor in determining how much money the parents should apply towards the oldest child's college education?

There are real economic implications to a parent's decision to help fund a first child's education, especially when there is no money specifically set aside for the expenditure.  The parents may potentially be sacrificing the educational opportunities of the younger children in favor of the older child.

As a result, the Court ultimately found that the parties have a reasonable ability to contribute $7,500 per year – $3,375 from the mother and $4,125 from the father (45%/55% split) – which was to be allocated between three college savings plans to be established and earmarked for all three children's potential college costs.  This would result in a total contribution of $60,000 ($7,500 * 8 years), or $20,000 per child for his or her college education.

This opinion is novel for parents and the legal community alike.  Oftentimes, judges may be quick to strictly adhere perceived interpretations of case law based upon the prevailing legal practice, all the while ignoring the harsh economic realities posed by their decision.

Recall the Rutgers professor who agreed to contribute to the cost of graduate school and then got saddled with a $120,000 for his daughter to attend Cornell Law School?

The judge in this case, however, was not afraid to go out on a limb and deviate from awarding an amount that would have been financially devastating for both parents, and potentially for their younger children.

This case is especially instructive in drafting divorce agreements, so that litigants and their children can avoid long, protracted battles that ultimately do nothing more than deplete funds that would otherwise be contributed toward college. For example specifying the following in your divorce agreement could cut off much potential conflict at the pass:

1.         Percentages of Contribution.  Especially if your child is close to college-age, specify what percent each parent will contribute.  This will avoid the nickel and diming in the future.

2.         Expenses Covered.  Will the parents be responsible for room and board?  What about books? SAT and college preparatory classes?  Years abroad?  Set forth in your agreement exactly which expenses will be covered.

3.         Type of School.  Should the cost of tuition be capped at a state university or would you like to see your child go on to a prestigious, yet pricey, private school?  Reasonably decide what you can afford and cap the contribution if you believe paying for private college will impose financial stress.  Again, this does not mean that your child cannot attend the private school; he or she may just have to bear some of the cost.

4.         Establish 529 Accounts Early On.  If you have more than one child, a 529 account may be most appropriate if limited funds need to be allocated equally.  You may even want to stipulate to a joint 529 account in your divorce agreement, with an agreement by each party to contribute a certain amount each year. Remember, money placed in a 529 grows tax free and you can take it out if your client receives a scholarship, penalty free.  It is a win-win all around.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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