When the names of one or both parents are on an account established in trust for the children, the courts in a divorce must decide if the parents hold the account beneficially for themselves or only as trustees for their child. If the funds have been used for other purposes (if the parents, for example, have used them for mortgage payments on the marital home and then at a latter date replaced the money) the accounts are not the property of the children and are in fact subject to distribution as part of the marital estate.

An account titled under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gift to Minors Act (UGMA) is probably the children’s property. The UTMA superseded the UGMA, and it establishes a custodial relationship between the adult and the minor child that terminates when he or she achieves a majority.

The presence of the children’s names on the account supports an argument that the accounts are the property of the children, but the real issue turns on a question of whether the funds are what has been termed a "complete gift to the children."

Totten trusts -- devices where the grantor lacks legal title but has actual control over the trust assets -- are sometimes established for children. Courts agree that the assets of these trusts are marital property.

Courts recognize that gifts to third parties may constitute fraud against the other spouse, and they view such gifts as dissipation. However, in the case of transfers to children, even when the timing of such gifts may seem suspicious -- when they happen near the onset of a divorce -- some courts have been disinclined to view them as fraud or dissipation, even when the grantor retains some control of them.

In general, community property and equitable distribution states view gifts differently. In community property jurisdictions, both the husband and the wife have a legal right to the property of the community, and therefore a gift to a third party is not valid unless both spouses agree to it. In equitable distribution jurisdictions, either spouse may make gifts from the martial estate until the marriage breaks down.

See also Dissipation of Assets.

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