Children's Accounts - How to Value and How to Address

Children's accounts, also known as custodial accounts, are financial accounts established for the benefit of children. These accounts are designed to hold assets on behalf of children until they reach adulthood, providing a means for saving, investing, and managing financial resources for their future needs. In divorce proceedings, children's accounts may be subject to evaluation and division as part of the property settlement process. You should understand these accounts so you can make informed decisions on these accounts in divorce.

First: Gather the Facts

Children's accounts come in various forms, each serving a specific purpose and offering unique features.  Here are the most common accounts held for the benefit of children.

• Savings Accounts: These accounts are designed to hold cash deposits and earn interest over time. They provide a safe and accessible way to save money for children's future expenses, such as education, extra-curricular activities, or major purchases.
• Investment Accounts: Investment accounts allow for the purchase and holding of stocks, bonds, mutual funds, and other securities on behalf of minors. These accounts offer the potential for growth and capital appreciation over the long term, providing a valuable tool for building wealth for children's future financial goals.
• 529 College Savings Plans: 529 plans are tax-advantaged savings vehicles specifically designed to help families save for future education expenses. Contributions to these plans grow tax-deferred, and withdrawals used for qualified education expenses are typically tax-free.
• UTMA/UGMA Accounts: Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts are custodial accounts established by adults on behalf of minors. These accounts allow for the transfer of assets, such as cash, securities, or real estate, to minors, who gain control of the assets upon reaching the age of majority, typically age 18 or 21.

Second: Understand the Law

In divorce, children's accounts are considered part of the marital/joint estate and may be subject to division between the spouses. Children's accounts are typically owned and controlled by one or both parents, with the assets held in trust for the benefit of the child. In divorce, ownership and control of children's accounts may be determined based on factors such as each parent's financial contributions, involvement in managing the accounts, and the best interests of the child.  The source of funds used to establish or contribute to children's accounts may impact their treatment in divorce. For example, if a 529 college savings plan was funded with one party’s inheritance, they may argue for the account to be considered their separate property.

The intended purpose of children's accounts, such as saving for education or providing financial support for the children's needs, may influence how they are handled in divorce. Unless the parties have substantial need for additional funds to meet their personal needs, most parties choose to continue to maintain the accounts for the benefit of the children.  Conflict, if any, most commonly arises over who will have control over the assets for the benefit of the children.  While you may have a right to cash out the kids’ accounts and use them for your personal benefit, most parties choose to maintain them for the original intended purpose.

Children's accounts are valuable financial tools for providing for the future needs and well-being of minors. In divorce, careful consideration and strategic planning are essential for addressing children's accounts in a manner that prioritizes the children's welfare and financial security. By understanding the types of children's accounts, their treatment in divorce, and the options for division, divorcing spouses can navigate this aspect of the property settlement process effectively.