What Now?

[John H]

I have been divorced for almost four years and remarried for two. I live in Georgia.

In my settlement agreement, I agreed to pay 60% of my children's college education, to include tuition, books, fees, and room and board; if off-campus, I am to pay "comparable" costs charged by the college. Their mother is to pay 40%. The money the parents pay is to be "reduced by any grants, scholarships, or other financial benefits of the child".  I am also to pay 50% of their car insurance until they graduate, and a $300.00 a month "additional property settlement" because when I divorced, I could not afford the entire amount of child support.

My son is now 22 and a Junior at a State University. My daughter is 19 and is a Sophomore at another State University. They both have Georgia's "HOPE" scholarship, which pays tuition, most fees, and a book allowance.

 I have paid all college bills, child support, . My wife has helped me, as I could not afford all the college room/board expenses. They are both now off-campus. 529 plan money goes directly to them, since they have the HOPE.

Last year, when my son wanted an apartment off-campus, I told him I wanted him to stay in the dorm; there are too many "other" expenditures involved in off-campus living. Within a week of my son and ex-wife signing a lease agreement I did not agree to, I received a letter from her, then her attorney, demanding that I pay my "60%" for a 12 month apartment and "summer school" expenses, or face contempt charges. I chose to get an attorney and request that the very "vague" divorce decree be "interpreted" by the judge. Since car insurance is contested to the time they are in college, I asked for verification of that, as well. We went to court a year ago August  and the judge ruled that a four-year college degree is two semesters, four years. The parents are not obligated for summer school or or room and board. What I did not know during this time, is that my son had secured loan thru the school.

College funds have been in one case disbursted directlyl to my son as he was living off campus. This check was cashed. There are no records of the money being spent for quialified educational expenses. Repated request to my ex wife have been ignored.
1. Are secured or unsecured loans considered to be a benefit?
2. If the 529 plan money to my son was used for non qualified expenses, is this considered to be fraud ?
3. Can the settlement agreement be thrown out due to fraud?              

[socrateaser]

>1. Are secured or unsecured loans considered to be a benefit?

No, a benefit is something that doesn't need to be repaid.

>2. If the 529 plan money to my son was used for non qualified
>expenses, is this considered to be fraud ?

To become a fraud against you, you would have had to release funds to the child in reliance on their being used for educational purposes which would offset your agreed and court ordered obligations. If you can prove that this occured, then you would have a case for fraud. However, be advised that fraud must be proven by clear and convincing evidence, so it's a tuff burden to overcome.

>3. Can the settlement agreement be thrown out due to fraud?  

Only if you could prove that when it was originally entered into, the other parent intended to take the money and use it for a non-educational purpose. Otherwise, the fraud isn't that you were induced to enter into the agreement based on a false promise, but that the money was released by you based upon a false promise and that you were injured as a consequence, because you will still have to pay out of pocket for the educational expenses not paid for using the 529 money.

Thus you should be entitled to restitution of the money paid out or an offset against the money already used. And, if the other parent used the money for her own purposes, then that would be a breach of fiduciary, which is an even more powerful legal case, because for that you can get your attorney fees paid in addition to restitution, whereas for a fraud, you can't.

But, on the other hand, for a fraud, you must sue in civil court, and the other parent wouldn't be entitled to attorney fees either, which sometimes can cause a person to think real hard about settling in a hurry, lest they be swamped by legal bills that they can never recoup.

[John H]

Thank you for your response.
The loans were subsidized Stafford loans through the federal government. The summer loan, completely subsidized, had already been awarded to him, unbeknownst to me, when I was threatened with contempt for not paying for summer school expenses and for not paying all costs associated with an off-campus apartment with a 12-month lease. At the time of the threats of contempt, leading to my having to file the Motion for Clarification and fight it in court, my son and his mother already knew about the subsidized loans for the summer and fall semester, even as we sat in the courtroom.

I paid all costs for fall, 2005, with funds from my wife's 529 plan, originally set up for my three stepchildren. I absolutely did rely on these funds being used to pay off-campus room/board expenses. I cautioned both children about the importance of keeping all receipts. In December, 2005, my ex-wife walked into my bank and "cashed" a $4,000.00 check meant for college expenses for Spring Semester, 2006.

Because of this, and other red flags, I began asking in January, 2006 for absolute proof of expenditures with the money provided. My requests were ignored, and my son refused to provide his "pin number" to his college account, denying me access. Numerous letters were sent, asking for cancelled checks and receipts, and access. I suspected that either he wasn't living in the apartment and therefore not paying rent, or that he had received a grant.

It became a full-time job trying to figure it all out in the face of all the deception. My wife, whose funds were misused, is now acutely depressed and under the care of a psychiatrist because of the toll it has taken on our marriage and the fact she feels helpless to do anything about what they've done. She was in school trying to get her Nursing degree and quit because she couldn't concentrate enough to do her homework. I have promised to make it right, and am paying her back, but she wants the Ex and my son to face consequences for what they've done.

Finally, after a strongly-worded letter to my Ex-wife in April, reminding her once again that our divorce decree requires her to provide me with documentation, information, and receipts when reasonable requests are made, she sent me a copy of my son's account (only for Spring, leaving out Summer and Fall), and that is when I found out about the partially subdized Stafford loan. After several more letters, they gave me the fall information, and then, a week ago when I refused to pay another dime without substantiation of funds provided and the pin number, I received the pin number and a typed "receipt" from the landlord for the preceding year. So, it took fourteen months to be provided with the information about the fully subsidized Stafford loan awarded in May, 2005.

Due to the fact that the loans were disbursed in 2005, obviously based on a 2004 tax return/2005 FAFSA, and they were subsidized, I strongly suspect that the FAFSA was falsified. Between child support for my daughter in 2004 (and part of 2005), including major out-of-pocket medical expenses for surgery on her nose not covered by insurance, car insurance and car payments for both kid's cars, and college expenses, the support for 2004 was $30,000. My Ex is a dental hygenist and makes a good living. She denied knowing about the loans, even though she had to have signed the FAFSA; both kids are her legal dependents.

I asked the 529 plan representive to please track down the check disbursed in August, 2005. She called last week to say it appeared to have been "cashed" at my son's bank; that is the only way I know what happened to it. The "refund" from the overage in loans/scholarships was received the same day. After some research (my son tells me nothing; the relationship is now completely severed due to all of this), I confirmed that his new car was purchased exactly two weeks later, for exactly the amount of money that, added together, equaled the 529 Plan funds and the refund from the school.

My Ex-wife wrote in a nasty note in January that she had instructed my children to ignore the 1099Q's received by my children reported to the IRS by the 529 plan, because they were "a gift". With absolutely NO substantiation, except for a "receipt" by the landlord (my son's friend's father and mother...their son shared the apartment), two "cashed" checks, one within two weeks of buying a car (a camaro) and the other one cashed just prior to my son's 1974 vintage Corvette being refurbished and all of a sudden on the road instead of in pieces in his mother's garage (I saw it by accident on the road in March...there aren't any other cars like that, that color, in our area), I am 100% sure that my funds were used on non-educational espenditures. My son even admitted to me, when I pressed him about the matter at a relative's funeral in June, that all refund money was used "for cars".

Since I now I access to both kids' college accounts, I know that they both have more loans, so I know that there was also a 2006 FAFSA. My Ex-wife's house was sold for $500,000.00 (250,000 equity) January 27...I'm sure within a week or two of the FAFSAs being signed, and then she remarried and moved to her (now) husband's home. If that was unreported, as well as the funds from the 529 plan, and of course I have no idea, the 2006 FAFSA would have been falsified as well. I get the impression that anyone who would walk into my bank and "cash" a $4,000 check, and support her son as he (and she) lied to his father, would have the nerve to do just about anything, thinking there is no way she could get caught.

Two weeks ago, all documentation we had, including all copies of 529 plan statements and a speadsheet detailing support/expenditures, and unsubstantiated funds was sent to the OIG at the Department of Education, alleging suspected FAFSA fraud. Forms and documentaion were also sent to the IRS fraud unit, alleging suspected funds given to my Ex-wife in excess of college expenses, and possible unreported (by my son) taxable income due to 529 plan money used for non-qualified expenses. It has been confirmed by the 529 plan that off-campus room/board would be a qualified college expense.  

My questions now:

1. Given what I've said, how does one prove fraud and "theft by conversion?"? My wife and I feel strongly that is what has occurred here. She is not interested in a civil suit, but is considering criminal charges when she is stronger. Obviously, the toll this is taking on the both of us is incredible; her, because it was her children's college money, and me, because now I have turned my wayward son into two government agencies.

2. I realize that one cannot throw out a settlement agreement unless the original information was false, but IF there has been criminal fraud/theft, is there ANY precedent for at least a modification in view of these kind of unusual circumstances?

Thank you so much for reading this extremely long post about this convoluted story...I haven't even told you about my son's astronomical car insurance, multiple accidents and tickets and the tempory loss of his license and altered MVR report...but I'll save that for another day!

John H.

[socrateaser]

>My questions now:
>
>1. Given what I've said, how does one prove fraud and "theft
>by conversion?"? My wife and I feel strongly that is what has
>occurred here. She is not interested in a civil suit, but is
>considering criminal charges when she is stronger. Obviously,
>the toll this is taking on the both of us is incredible; her,
>because it was her children's college money, and me, because
>now I have turned my wayward son into two government
>agencies.

Don't try to prove fraud or conversion. See my comments at the bottom of this post.

You're not gonna get anywhere with a criminal complaint. The DA won't see enough money or media attention to make this case interesting enough to put up public funds to prosecute.

As far as it being your new spouse's child(ren)'s college funds, well, you shouldn't have a joint 529 account. The accounts should be separate for the various parties. Frankly, if you comingled the money from both relationships, then it's your fault and your new spouse's fault that the old spouse was able to get at the dough.

>
>2. I realize that one cannot throw out a settlement agreement
>unless the original information was false, but IF there has
>been criminal fraud/theft, is there ANY precedent for at least
>a modification in view of these kind of unusual circumstances?

No. Not unless the crime or fraud occured prior to or contemporaneous with the making of the agreement.

And, these circumstances are not that unusual. People are always stealing from each other. Happens every day.

I think you may be making this too difficult. You can simply refuse to provide any more funds for anything until you are provided with evidence demonstrating that the $4K was used for the approved purpose. Then, if the proof is not forthcoming, then you simply refuse to pay and let her take you to court, where she will have to prove up where the money went.

And, if the proof shows up and it demonstrates that the money was misapproporiated, then you can refuse to pay the next $4K in bills, and once again, tell her to sue you if she doesn't like it. Then you can defend based on the misappropriation of funds up to the $4K.