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FAFSA Tips For Students of Divorced Parents

Among the headaches that come with a divorce is figuring out how to pay for college, because divorce often takes a toll on a family’s finances.

“You had one bucket of money that was going to one household,” says Diane Pappas, a certified divorce financial analyst. “Now you have to split it between two households.”

Below are five tips for students with divorced parents, including how to determine which parent’s income information to include on your Free Application for Federal Student Aid (known as the FAFSA) and how to maximize the amount of financial aid you’re eligible for.

1. Fill out the FAFSA as soon as possible

You need to fill out the FAFSA to be considered for federal grants, work-study, student loans and some scholarships. Some financial aid is awarded on a first-come, first-served basis, so submit the FAFSA as soon as possible to be eligible for the most aid. For help filling it out, including a tutorial that walks you through the application step by step, check out NerdWallet’s FAFSA Guide.

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2. Understand which parent’s tax information to list on the FAFSA

If you’re an independent student, you don’t need to list either parent’s tax information on your FAFSA. If you’re a dependent student, you need to answer questions about at least one parent in the Parent Demographics section of the FAFSA.

If your parents are divorced or separated but still live together, provide information about both of them on your FAFSA. If your parents are divorced or separated and don’t live together, the FAFSA will consider only your custodial parent’s income.

For financial aid purposes, your custodial parent is the one you lived with the most in the last 12 months, or the parent who provided you with the most financial support. It may be different from the parent who has legal custody.

If your custodial parent is remarried, list your stepparent on the FAFSA too. There’s one exception: On the question that asks about your parents’ highest education levels, provide answers about both of your biological or adoptive parents, even if they’re divorced. Don’t answer this question about a stepparent.

This infographic from the U.S. Department of Education walks you through it:

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Source: Office of Federal Student Aid

3. When possible, be strategic about whom you choose as your custodial parent

If you lived with each parent for an equal amount of time in the previous year, and your parents provided equal financial support, you can choose which parent’s information to include on the FAFSA. To be eligible for the most aid, list the parent with the lower income.

Some families strategically create their divorce agreements to make the lower-earning parent the custodial parent, Pappas says. A 51-49 percent split between the custodial and noncustodial parents is enough to ensure that the lower-earning custodial parent fills out the FAFSA, giving the student the best chance of qualifying for the most financial aid.

4. Know the divorce details

The FAFSA asks you to report the date of your parents’ divorce or separation, and some schools’ financial aid offices will even ask for the divorce agreement, Pappas says.

You’ll also have to indicate how much child support your custodial parent (the one you chose to list on your FAFSA) paid or received in the previous year. Child support, which isn’t taxable for the parent who receives it, is different from alimony, says Joe Orsolini, a college financial planner in Glen Ellyn, Illinois. Alimony that your custodial parent receives is taxable, so it’s reported on the FAFSA in his or her taxable income; there’s no need to report it again separately.

“Many families don’t realize the difference and mistakenly include the amount twice on the FAFSA, which will cost them financial aid,” Orsolini says.

5. If the divorce was recent, be prepared for tax complications

The most common FAFSA complications related to divorce happen when the divorce is recent, says Ron Day, director of financial aid at Kennesaw State University in Kennesaw, Georgia.

That’s because you typically complete the FAFSA using the previous year’s tax information. For example, you’ll use 2015 tax information for the 2016-17 FAFSA. If your parents file a joint tax return for the 2015 tax year and divorce soon after, the tax information you reported on the FAFSA won’t reflect your parents’ new status.

However, if you provide the right additional paperwork (you’ll typically need a W-2 form for each parent), your college’s financial aid office can usually work with you to correct any FAFSA mistakes that resulted from a recent divorce, Day says.

How does divorce affect college financial aid?

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.