Accounts Owned by the Children
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Initially, it is important to note that property owned by the parties’ children is no different from any other type of third-party property. The purpose of equitable distribution is to divide the property of the parties, not the property of their children. Thus, the property of the children is generally outside the jurisdiction of the divorce court. See generally Bishop v. Bishop, 60 Ark. App. 164, 961 S.W.2d 770 (1998) (CD given to parties’ son); In re Marriage of Gorman, 36 P.3d 211 (Colo. Ct. App. 2001) (securities owned by children); Madere v. Madere, 632 So. 2d 1180 (La. Ct. App. 1994) (CD owned by parties’ son was not community property); Stratman v. Stratman, 948 S.W.2d 230 (Mo. Ct. App. 1997) (child cashed CD owned jointly by husband, wife, and child; proceeds were third-party property); Lawrence v. Lawrence, 100 N.C. App. 1, 394 S.E.2d 267 (1990) (educational trust owned by parties’ children); Crawford v. Crawford, 321 S.C. 511, 469 S.E.2d 622 (Ct. App. 1996) (various collectibles given to parties’ children were not marital property); Reymann v. Reymann, 919 S.W.2d 615 (Tenn. Ct. App. 1995) (error to divide property owned by parties’ daughter).
This general rule applies specifically to bank and investment accounts. If such an account is titled in the names of the children alone, the funds in the account cannot be divided upon divorce. For example, in Davidson v. Davidson, 643 So. 2d 1001 (Ala. Civ. App. 1994), a trial court decision dividing an educational account titled in the name of the children was reversed:
The record reveals that the wife opened two savings accounts, in her name and the children’s names, for the minor children’s educations. At the time of trial, the accounts contained a total of approximately $1900. At trial, the wife disclaimed any interest in the savings accounts. Based upon the foregoing, we find that the savings accounts are the property of the minor children. The minor children were not parties to the action, nor were they represented by a guardian ad litem; consequently, the trial court’s division of the minor children’s savings accounts is due to be reversed.
Id. at 1004.
The result does not differ where the accounts were actually used to pay expenses during the marriage. In Cox v. Cox, 882 P.2d 909 (Alaska 1994), the parties established accounts to pay the future educational expenses of their daughters. During the marriage, they would use funds from these accounts to pay general marital expenses when necessary, but they regularly recorded the amount used and restored it at a later time. The trial court held that the accounts were the property of the children. The husband appealed, arguing that the intended use of the money was not "sacrosanct." Id. at 917. Relying heavily on the practice of restoring the funds removed, the appellate court affirmed.
A strange but somewhat contrary result was reached in Pittman v. Pittman, 791 So. 2d 857 (Miss. Ct. App. 2001). There, the court held that educational trusts for the children were marital property because they were intended to pay a valid expense of the marriage. No other decision has ever held that property titled in the name of a nonspouse becomes marital simply because someone intended that it pay a marital expense. After holding that the trusts were marital, the appellate court then suggested that the trial court should "at least mentally" exclude the trust assets from division. Id. at 865. Why adopt such an unusual rule of classification, followed immediately by such a generally contrary rule of division? A strong and convincing dissent argued properly that the trust assets were simply not marital property.
An account titled in the names of the children is particularly likely to be the children’s property when it is established under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). A good demonstration is Parker v. Parker, 1 Neb. App. 187, 492 N.W.2d 50 (1992). In that case, the spouses placed marital funds into a UGMA account for their child during the marriage. The trial court treated the account as marital property, but the appellate court reversed:
At the time of trial, Robert junior was 26 years of age and testified that he has filed his own separate income tax return for the past several years, on which he reports the income from this money. Given Robert junior’s age and the plain language of the Uniform Gifts to Minors Act, it is clear that the money in this Merrill Lynch account is not marital property. Thus, the district court should not have attempted to exercise control over it by ordering the parties to this divorce to liquidate it by dividing it between them.
1 Neb. App. at 194, 492 N.W.2d at 55.
An Illinois decision used similar reasoning in affirming a trial court decision treating two UGMA accounts as property of the children:
Here, Peter admitted opening the accounts in the names of his children under the provisions of the UGMA. The documentary evidence of the accounts thus constituted a prima facie showing that the accounts were intended to be irrevocable gifts to the named minors under the UGMA. Although Peter argues that he opened the accounts for "tax avoidance" purposes, not for gift purposes, and that he intended to use the accounts as his own personal "stash" to shield money from taxes, Peter’s testimony is contradicted by the record. Marlyn testified to a conversation with Peter some time prior to the opening of the accounts wherein Peter stated that it was his intention to put money into savings for the childrens’ education. Marlyn further testified that Peter had separate conversations with each child, informing them of the existence of the accounts. The record further shows that Peter made deposits into the two UGMA accounts between June 9, 1980, and December 1, 1982, and that he did not withdraw any money from the UGMA accounts until January 24, 1986, the year in which the parties began to have serious marital difficulties. In addition, the record shows that Peter prepared tax returns for both children, claiming UGMA account interest.
In re Marriage of Agostinelli, 250 Ill. App. 3d 492, 501-02, 620 N.E.2d 1215, 1221 (1993); see also Minsky v. Minsky, 779 So. 2d 375 (Fla. Dist. Ct. App. 2000) (divorce court can order a spouse to repay funds dissipated from a UTMA account); Jefferies v. Jefferies, 895 P.2d 835 (Utah Ct. App. 1995) (funds given to children under UTMA were not divisible).
In addition, the parties in Parker also placed marital property into UGMA accounts for their grandchildren. The accounts were clearly owned by the grandchildren, but there was a new and different problem: The spouses had not yet given up full control over the transferred funds. The court found that the transfers into the accounts were not complete:
A valid gift of a bank deposit may be effected by depositing money in the name of the donee or in the name of the donor in trust for the donee, but in order to perfect such a gift, the donor must have intended a gift and must have completed it by delivery of the passbook or by performing some other acts divesting herself of dominion and control over the funds deposited. . . .
Applying these principles to the Heritage Federal and First Federal Savings accounts for Robert junior, Renee, and Andrea, it is clear that a completed gift has not occurred. Billie made it clear that she has maintained the passbooks and certificates, transferred the funds, and managed the accounts according to her wishes. It is doubtful whether the requisite intention to make a gift of these funds was proven, but in any event, it is clear that she has never surrendered dominion or control. Accordingly, since these were not completed gifts, the money in the accounts is a marital asset[.]
1 Neb. App. at 195, 492 N.W.2d at 56.
Under this second holding, funds in a UGMA account are not owned by the children unless the donor has given up all control over the account. Taken to its logical extreme, this holding would prevent any enforceable transfer from parents to minor children because the assets of minor children are always managed by their parents. Significantly, the second set of accounts in Parker was primarily for the parties’ grandchildren, and, if a real gift had been intended, control would have been given to the childrens’ parents. Since this was not done, the author agrees that no gift was present. But a control test should not be strictly applied to transfers by parents, or no transfer into an account for a minor child will ever be treated as complete.
At the same time, there will obviously be situations in which a parent-child transfer was not final. Compliance with the UTMA or the UGMA is prima facie evidence that a gift was made, but the prima facie showing can be rebutted. E.g., In re Marriage of Hendricks, 681 N.E.2d 777, 781 (Ind. Ct. App. 1997) (citing the cases). But see Thomas A. Allison, The Uniform Transfers to Minors Act New and Improved, but Shortcomings Still Exist, 10 U. Ark. Little Rock L.J. 339, 359 (1987) (arguing against a rebuttable presumption; "[b]ecause of the property implications and the resulting tax ramifications of establishing a custodial account, such a transfer should have a conclusive effect"). The mere exercise of normal parental control over a minor child’s property cannot alone rebut the presumption otherwise there could be no gift to minor children but the exercise of control beyond that point could suggest the absence of delivery or even donative intent. That is why the parties’ practice of restoring the funds removed from the account in Cox was so significant: It showed that the exercise of extraordinary control by the parents was temporary and limited.
Cox can be contrasted with a California decision in which the facts were very different:
Throughout the marriage it was husband’s custom to place the parties’ extra money in accounts in the children’s names to avoid taxes. Even though the money was placed in the children’s names, the parties always continued to treat the money as their own. Wife executed the $130,000 note and the gift tax return because husband told her it was necessary in order to avoid $12,000 in taxes. At that time, husband told wife that, as always, the parties would still have full use of the funds, even though the money was in the children’s names. Wife relied on husband’s financial expertise.
In re Marriage of Jacobs, 128 Cal. App. 3d 273, 284, 180 Cal. Rptr. 234, 240-41 (1982). The trial court held that the accounts were owned by the parents, and its decision was affirmed:
The record supports the view that both parties lacked donative intent with respect to the "gifts" to the children. The parties had a history of making "gifts" to the children while continuing to use the money as their own. Wife stated that husband used his financial expertise to manipulate the parties’ money, always telling her that it was necessary to take such steps for tax purposes, but that the money would still be the parties’ own.
128 Cal. App. 3d at 285, 180 Cal. Rptr. at 241. The key point, of course, was the regular history of using the children’s funds for marital purposes without replacing them, combined with the husband’s repeated express statements to the wife that the parties’ assets were being titled in the names of the children for tax purposes only.
Finally, it is worth noting that the technology is rapidly threatening the entire manner in which the law has traditionally approached gifts of bank accounts:
Deposits in banks are electronic bookkeeping entries that establish a debtor-creditor relationship between depositor and bank. The usual way in which the courts recognize a gift of a certificate of deposit or bank account has been by delivery of a physical token, i.e., the paper certificate or the bank book. Unfortunately, modern banking practice has just about eliminated physical tokens for certificates of deposit and bank accounts that can be delivered. There are no reported cases recognizing delivery of an ATM machine card and password to a donee as a valid gift of the account.
Eunice L. Ross & Thomas J. Reed, Will Contests 9:20 (2d ed. 2003) (footnote omitted).
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