How to Improve College Financial Aid Opportunities When Divorcing

Your divorce settlement can change how much financial aid your child qualifies for. The decisions that matter most are which parent ends up providing the majority of financial support, how spousal support is structured, and which assets each of you walks away with. Retirement accounts and home equity are treated very differently from cash and investments on the FAFSA, and that difference is worth understanding before you sign anything.

As a Certified Divorce Financial Analyst (CDFA), I often work with couples to maximize their estate by minimizing the tax impact of their financial decisions. With rising higher education costs, the conversation around divorce and college financial aid has become more prevalent. More couples are focusing on their financial aid opportunities when making agreements during their divorce. How assets will be divided, spousal support, and other financial decisions can all affect eligibility.

One of the best things about choosing mediation or another alternative to dispute resolution is keeping the power throughout your divorce process. When I sit down with a couple, before we even begin to discuss money, I ask what is most important to them, and what they are hoping to achieve for themselves and their family. Parents with high schoolers often raise college first.

What changed: the SAI replaced the EFC

If you researched this a few years ago, the terminology has changed. The FAFSA Simplification Act replaced the Expected Family Contribution (EFC) with the Student Aid Index (SAI), beginning with the 2024-25 FAFSA. The SAI works similarly, in that it is the number schools use to determine how much aid you qualify for, but unlike the old EFC it can go as low as negative $1,500, which can mean more aid for lower-income families.

Two other changes matter specifically for divorced parents:

• Which parent files changed. It is no longer based on where the child lives. More on this below.
• Child support is now treated as an asset, not income. Child support received used to be reported as untaxed income. It is now reported as a parent asset instead. Because assets are assessed at a much lower rate than income in the formula, this change generally helps the parent receiving support.

Which parent files the FAFSA after divorce

This is the change that catches the most people out, and getting it wrong can cost your child aid.

Under the current rules, the parent who files the FAFSA is the parent who provided the most financial support during the 12 months before filing. It is not the parent the child lived with most of the time, and it has nothing to do with who has legal custody. If both parents provided an equal amount of support, the parent with the greater income and assets is the one who reports.

Three things to keep in mind:

1. If you are divorced or separated and living apart, only one parent reports: the one providing the greater financial support, as described above.
2. If you are divorced or separated but still living together, both parents' financial information goes on the FAFSA.
3. If the parent who files has remarried, the stepparent's income and assets are reported too.

For a fuller walkthrough of the filing side, see FAFSA Tips for Divorced Parents.

Whose income is lower?

The lower the income reported on the FAFSA, the greater the opportunity for aid. When you are considering spousal support, remember that it reduces the income of the person paying and increases the income of the person receiving.

If you have children in or nearly in college, it is worth running the calculations to see how spousal support will affect aid eligibility. In some cases I have seen parents agree to lower spousal support, with the person who would have paid it taking responsibility for a higher percentage of college expenses instead. That arrangement requires a high level of trust, but it works for some families.

Note that the CSS Profile, the form some institutions use to award their own nonfederal aid, plays by different rules. It often considers the income of both parents regardless of support or living arrangements. A list of institutions that use the CSS Profile, and whether they require noncustodial parent information, is on the College Board website. If your child is likely to apply to schools that use it, plan for both.

How assets are treated

This is where divorce settlement decisions have the most leverage, because two assets of identical value can affect aid very differently.

1. Retirement accounts are not reported on the FAFSA and are not counted toward the SAI. This can affect how you decide to divide assets.
2. Home equity is not reported on the FAFSA. It is reported on the CSS Profile, and schools that use it weigh home equity differently.
3. The cash value of life insurance is not reported on the FAFSA.
4. Nonqualified annuities are considered by some schools on the CSS Profile.

The practical takeaway: a $200,000 retirement account and $200,000 in a brokerage account are not equivalent when it comes to financial aid, even though a settlement spreadsheet will show them as the same number. This is exactly the kind of thing worth modeling before you agree to a division of assets.

Frequently asked questions

Which divorced parent fills out the FAFSA?

The parent who provided the most financial support to the child during the 12 months before filing. If support was equal, it is the parent with the greater income and assets. Where the child lived and who has legal custody are no longer part of the test.

Does divorce increase financial aid?

Not by itself. But because only one parent's income is reported after divorce, a child may qualify for more aid than if both parents' incomes were combined, particularly when the reporting parent is the lower earner and has not remarried.

Is child support counted on the FAFSA?

Yes, but as a parent asset rather than as untaxed income. Assets are assessed at a lower rate than income, so this treatment is generally favorable to the parent receiving support.

Do retirement accounts affect financial aid?

Retirement accounts are not reported on the FAFSA and do not count toward the SAI. That makes how you divide retirement versus non-retirement assets in a divorce a genuine financial aid decision, not just a tax one.

Run the numbers before you sign

If you are able to work together, there are real opportunities for your divorce settlement to improve your child's aid picture. Every family's situation is different, though, and colleges apply their own rules on top of the federal formula. Divorce also often happens well before anyone is looking at schools.

If college is on the horizon and you are still negotiating, this is worth modeling properly rather than guessing at. Divorce financial planning is where those numbers get run, and running them before you sign costs a great deal less than discovering the answer afterward.

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For current federal rules and to start an application, visit studentaid.gov.

Intentional Divorce Solutions provides divorce financial planning, mediation, and coaching. We are not a law firm and we do not provide legal advice. This article is general education and is not individualized financial, tax, or legal advice. Financial aid rules change; verify current requirements at studentaid.gov before relying on them.

Last reviewed: August 2026