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How does divorce affect college financial aid?

(MoneyWatch) I received an email this week from a divorced mom in San Diego who was confused about which parent should file the Free Application for Federal Student Aid, or FAFSA, which is required to get a college loans. Her confusion was understandable because the financial aid rules are different for divorced families seeking help to send their children to college.

In this case, the dad claimed the teenager on his taxes, but the boy lived with the mother 95 percent of the time. Sometimes children of divorced families will benefit from special rules, and other times their chances for financial aid will be hurt.

    Here are six things that you need to know about divorce and financial aid:

    1. Who the child lives with matters. The parent who completes the FAFSA should be the one who has taken care of the child for most of the year. So if the child lives with the dad for seven months and the mom for five months, the mom's income will be irrelevant for financial aid purposes. The dad would complete the FAFSA and only include his income.

    To illustrate how this can be a boon for some families, let's assume that the mother is a physician making $200,000 a year and the father is a school teacher making $50,000. If the child lived with the dad most of the year, he would declare his father's lower income, and his mom's large salary wouldn't figure in the aid application.

    In the unlikely event that the student lived an equal period of time with each parent, the parent who spent the most money on his or her care would complete the FAFSA. Notably, the federal government has no way of knowing where a student is spending most of his or her time.

    2. Get the time period correct. When determining the residency of the child, don't look at the calendar year. For financial aid purposes, the parents must determine where the child lived most of the year during the 12-month period that ends on the day the FAFSA is signed. For example, if the FAFSA will be submitted on Feb. 15, 2014, the 12-month period would start on Feb.15, 2013.

    3. Who claims a child on a tax return is irrelevant. In determining who is responsible for filing the FAFSA, which parent claims the child for income tax purposes is irrelevant. So the mother in San Diego would not have to worry that her ex-husband's claim of his son on his tax return would jeopardize financial aid chances. Who pays child support is also irrelevant when determining who is the custodial parent.

    4. Remarriages matter. A child's eligibility for financial aid can be jeopardized if the custodial parent remarries.  When the custodial parent remarries, the new spouse's income and assets must be reported on the FAFSA.

    5. The CSS/Financial Aid PROFILE has different rules. About 250 mostly private schools in the U.S. use the PROFILE aid form, which treats divorce differently than the FAFSA. In most cases, the schools want financial information from both divorced parents. What schools will do with this information will vary by institution.

    Many schools will require an ex-spouse to complete the Noncustodial PROFILE, but some don't. Here is the list of PROFILE schools.

    For more information, watch my interview with Paula Bishop, a CPA in Bellevue, Wash, and financial aid expert, on what divorced parents need to know about financial aid.

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