Accounts Owned by One or Both Parents
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If the parents’ names are on the account, the situation is more complex. To the extent that the parties own legal title to the account, the account is nominally marital. But divorce cases are actions in equity, and courts of equity generally look to beneficial ownership. When the parties own legal title but not beneficial ownership that is, when they hold an asset only as trustees the asset generally cannot be divided. See generally Friedman v. Friedman, 2002 WL 314363 (Conn. Super. Ct. 2002) (husband shared title to custodial account, but his parents were the sole beneficial owners); In re Gebhart, 240 Mont. 165, 783 P.2d 400 (1989) (property held in irrevocable trust for children was third-party property); Largiader v. Largiader, 151 A.D.2d 724, 542 N.Y.S.2d 789 (1989).

Thus, when the name of one or both parents is on the account, the court must determine whether the parents own the account as beneficial owners or as mere trustees. The easiest cases are those involving funds which are legally set aside for the exclusive use of the child. For example, to the extent that the funds in the account are Social Security benefits payable to the child, they must be beneficially owned by the child, for the law does not permit them to be beneficially owned by the parents. Thus, they cannot be treated as marital property. Jendreas v. Jendreas, 664 N.E.2d 367 (Ind. Ct. App. 1996); see also In re Marriage of Driscoll, 563 N.W.2d 640 (Iowa Ct. App. 1997) (reaching the same result on the basis that the funds were not created through active marital efforts).

One could easily see a similar rule applying to a gift or inheritance received as the child’s financial guardian or to child support received for a child who is not a product of the marriage. See Cox v. Cox, 882 P.2d 909 (Alaska 1994) (accounts in names of children, established with child support from children’s father, were properly treated as property of the children); cf. Miller v. Miller, 763 N.E.2d 1009 (Ind. Ct. App. 2002) (trial court erred by dividing wife’s child support judgment against third party; judgment was property of child, not an asset of the marriage); Elkins v. Elkins, 763 N.E.2d 482 (Ind. Ct. App. 2002) (error to treat child support arrearage owed to wife by third person as marital property, although unequal division made error harmless on the facts).

If the parents are legally permitted to own the funds in the account outright, can the court still find that the funds are held in trust on the facts? While no reported divorce case in recent years has so held, the possibility still seems significant. Contractual provisions obligating the parties to use certain accounts for the benefit of the children are not uncommon in separation agreements. See, e.g., Damascus v. Damascus, 2002 WL 31310095 (Conn. Super. Ct. 2002); Martin M. Shenkman, Negotiating Education Trusts as Part of a Divorce Agreement, 17 Matrimonial Strategist 1 (May 1999). If the parties can agree after divorce to use certain accounts for the benefit of the children, why can they not reach a similar agreement during the marriage? Issues of proof would exist, of course, and enforcement might be barred by provisions in some states requiring that midnuptial agreements be in writing. E.g., Va. Code Ann. 20-147, 20-155 (Westlaw 2003) (requiring that midnuptial agreements be in writing and signed by both parties). But it might be possible to avoid a writing requirement by stating a claim for ownership by the children as a claim under the law of trusts. This is an area in which future litigation seems likely.

If the parents are not required by trust or contract to use the funds for the benefit of the children, and the names of the children are not on the account, the account is property owned by the parties. In an all-property state, the entire account would be divisible. In a dual-classification state, the account would be marital property to the extent it was acquired during the marriage.

For example, in Roehmholdt v. Russell, 272 A.D.2d 938, 712 N.Y.S.2d 709 (2000), the wife owned certain savings bonds. The bonds were payable to the children at the wife’s death, but they were owned by the wife during her lifetime. The wife "testified that the bonds were purchased as a means to save for the children’s college educations," 272 A.D.2d at 939, 712 N.Y.S.2d at 711, but there is no indication in the opinion that she argued or even alleged a binding trust or contract to use the proceeds for the children. Noting that "this is not a case where the parties agreed to make a gift of marital property" to the children, the appellate court held that the bonds were marital property. Id.; see also Shields v. Shields, 59 S.W.3d 658 (Mo. Ct. App. 2001) (CDs owned by parties and children were cashed in and proceeds titled in names of parties; proper to hold that children had no interest in proceeds).

The argument for treating an account as property of the children is especially weak where the parties themselves recognized that any intention to use the account to benefit the children would not be binding:

The court erred, however, in ordering that a Merrill Lynch account with an approximate balance of $14,000 be maintained as an educational fund for the children, ages 13 and 10 at the time of trial. Plaintiff and defendant agreed that the account had been set up for the children’s college expenses, but it was not in the form of a custodial account. Plaintiff testified that it was understood that the parties could use the money for another reason should the need arise. Both parties were unemployed at the time of trial and were incurring large debts to cover living expenses for themselves and the children. No evidence was presented to establish that the children would be likely to attend college. Under those circumstances, the account should have been divided equally between the parties.

Krall v. Krall, 269 A.D.2d 856, 856, 703 N.Y.S.2d 340, 341 (2000).

Where there is testimony supporting a joint intention to use an account in the parties’ names only for the children, the trial court is of course not required to believe that testimony:

Furthermore, the Supreme Court correctly awarded the parties’ investment account at Sanford C. Bernstein & Co., LLC, to the plaintiff. Although the defendant claimed that the funds in this account were "earmarked" to pay the college expenses of the parties’ daughter, the Supreme Court found his testimony regarding financial matters to be less than credible, and the Supreme Court’s assessment of the credibility of witnesses is entitled to great weight on appeal. . . . Moreover, while the parties maintained five custodial accounts for their daughter pursuant to the Uniform Gift to Minors Act, the subject account was held jointly by them during their marriage, and was not an educational account.

Wortman v. Wortman, ___ A.D.2d ___, 764 N.Y.S.2d 282, 284 (2003); see also In re Marriage of El Bitar, 146 Or. App. 608, 934 P.2d 608 (1997) (father’s testimony that he told bank manager to place funds in children’s names was not sufficient to show that children actually owned the funds).

In Weiss v. Weiss, 954 S.W.2d 456 (Mo. Ct. App. 1997), the court held that bank accounts held by parties as custodians for the children are marital property unless the requirements of the UGMA have been met. This is an excessive position not presently followed by any other state. Weiss cited in support of its holding S.L.J. v. R.J., 778 S.W.2d 239, 245 (Mo. Ct. App. 1989), which in turn cited Hanson v. Hanson, 738 S.W.2d 429 (Mo. en banc 1987), but neither S.L.J. nor Hanson held that custodial accounts are marital property unless established under the UGMA. They held only that the trial court did not err by holding on the facts that a non-UGMA account was marital property. The UMGA is not the only way to give property to children, e.g., Jendreas, Cox, and the courts should not dismiss on the law the possibility of a gift through other means.

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