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What Happens to Children’s Accounts Upon Divorce

One of the most basic rules of equitable distribution provides that the court can divide only property owned by the divorcing spouses. If legal title to a particular asset is held by a third party, the law of equitable distribution does not permit the asset to be divided. This is true regardless of whether the jurisdiction involved recognizes the concept of separate property.

Despite the general rule, third-party property issues arise regularly in divorce cases. While assets owned by third parties cannot be divided under the law of equitable distribution, the divorce court is free to resolve conflicting claims to ownership of such assets under normal principles of contract, trust, and property law. Id. 5.07 at 167 et seq. (Supp. 2003). If those principles indicate that the spouses have an interest in the property for instance, if property titled in the name of third party is actually held in some form of trust for the benefit of one or both spouses then the law of equitable distribution would apply to that interest.

This article considers one particular type of asset often involved in third-party property disputes: a bank account intended for the college education or other extraordinary use of the parties’ children. Depending on how the account is set up and used, it may or may not be property which the court is permitted to divide in the divorce action.

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