As a parent, you want to ensure your children have the support they need to achieve their goals once they become adults. This support often takes the form of savings meant for college. 

Or maybe you just want to give your child a head start, and the money will be held for other purposes when the child is old enough to use it.

In many cases, this support could take the form of a savings account. It could be a trust fund or even just a checking account. Whatever type of holdings it is, often parents will create the account and start saving when the child is young.

Financial accounts for children can become a subject of contention when a marriage ends in a divorce. If the account was opened while the parents were married or even under other circumstances, it is helpful to understand how children’s accounts are treated during a divorce. 

The ending of a marriage is a difficult time. Tensions are high, and you may not be on the best terms with your ex-spouse. 

But don’t let this stop you from working with your ex-spouse to make sure your children are financially cared for. Working with a full custody lawyer can help you navigate your children’s financial arrangements.

First, let’s review a few common types of children’s accounts.

Bank funds for the children of divorce

An important part of divorce is setting up the right savings or fund for your children.

Accounts for Children

Custodial Accounts

Because children under 18 years old cannot open savings accounts on their own, custodial accounts were made available instead. According to federal law, minors are not permitted to open savings accounts alone. 

Custodial accounts are considered the property of the minor, and parents manage the account until the child becomes an adult. Parents, or custodians, cannot legally make withdrawals from these accounts for their own use. 

When the child reaches age 18, the account is typically turned into a normal savings account. However, custodial accounts are taxable once the account is opened for use.

Two of the most commonly used types of custodial accounts are Uniform Gifts to Minors Act accounts (UGMA accounts) and Uniform Transfers to Minors Act accounts (UTMA accounts).


Education savings accounts or 529 plans

Education savings accounts are used to pay for the educational expenses of a child in the future. They are also called 529 plans, based on the internal revenue code designation. 

These accounts can be established by parents, grandparents, or others, depending on the requirements of the financial organization providing the account. 

Funds placed in the education savings account can only be used for qualified education expenses. These expenses include tuition, fees, books, room and board, as well as related materials and equipment.

A 529 plan grows tax-free. Additionally, withdrawals will not be taxed if the funds are used for educational purposes. The named beneficiary can also be transferred to a different child.

There are two types of 529 plans: college savings plans and prepaid tuition plans.


Trust funds

Trust funds are not only for the wealthy. They are a great way to ensure children are positioned to make sound financial decisions once they are old enough to use the funds.

Trust funds are created by the grantor, in this case, probably the parent. The grantor determines how and when the beneficiary is allowed to access the money. The grantor also decides what goes into the fund. This could include bonds, cash, stocks, or types of property.

If the grantor dies, a trustee is appointed to ensure the trust is handled according to the original plan. Once the beneficiary is old enough or meets other requirements, access is given to the beneficiary.

Other accounts

There are a number of other types of child accounts. Other types include joint checking accounts and interest-earning savings accounts. However, for the sake of brevity, we won’t dive into those here.


Ensuring Financial Security for your Children

 It will be important to find common ground with your spouse to get the best outcome for your child. Protecting the future of a couple’s children often serves as a shared goal. 

Focus on this shared goal to help pave the way during legal proceedings. This common ground will serve as a map to plan out the support for your children.


Custodial accounts in divorce

Generally, divorce courts do not have jurisdiction to alter UTMA (or UGMA, an older version of the account) accounts. The funds belong to the child, and the parent does not have the right to legally use the funds for their own purposes.

In the case of a custodial account, the parent or custodian is required to manage the account on behalf of the child. The account cannot be managed on behalf of the custodian. This requirement allows for greater protection of the account in the event of a divorce.


What happens to an education savings account in divorce?

A child’s 529 or education savings account may end up divided in a divorce. Some courts might exclude the account from division. But, other courts may require the account owner to pay half of its value to the other parent.

A child custody attorney in Los Angeles can help you protect your child’s educational savings. Funds in a 529 savings account technically belong to the parent or custodian. 

Even if both parents contributed to the account prior to the divorce, the account would only have one owner. As a result, it is important to consult an attorney to understand how this account is handled in your unique situation.


Protecting a Living Trust

In California, trusts may be subject to equitable distribution. However, certain provisions can be placed on the trust to protect the trust from situations like divorce.

In a divorce, beneficiaries of a living trust are not necessarily changed to exclude your ex-spouse. Your ex-spouse could receive the inheritance instead. Also, your ex-spouse could be made the trustee and be able to control the child’s inheritance.

To protect a living trust, an amendment can be made to ensure your child receives the inheritance. Also, amendments can be created that ensure your-ex spouse cannot remove someone else as a trustee in case you do wish your ex to help manage the trust.

California has its own unique laws related to trusts and divorce. A Divorce attorney in Woodland Hills will be qualified to help you understand how trusts are handled.

divorce family law financial planning

A good divorce family lawyer can you help you find a money specialist to get your family’s funds in order before divorce.

Saving for your child’s education now

If you don’t already have some type of savings account for your child and are getting a divorce, you can start one now. Establishing a trust for college at the time of divorce is a good way to ensure your child will have access to the funds. 

Money can be set aside using an escrow or trust account placed in the child’s name. This account can be made for the sole purpose of providing college tuition and related expenses. 

By creating an account in this way, no agreement requiring enforcement is necessary. You can work with a full custody lawyer to help ensure this savings account is crafted to go to only your child.


Your children’s financial accounts

There are a lot of financial items to consider during a divorce. There are a variety of financial pros and cons to using a given type of account for your child. But here, we focused on the legal considerations during divorce for each account category.

If you are considering creating an account for your child, it will be important to consider both the financial benefits and the legal vulnerabilities of each account type.

To better understand the vulnerabilities and protections afforded to each account type or how you may be able to protect an existing account, speak with a forward-thinking child and spousal support attorney. Having a family divorce lawyer with experience with disputes over children’s accounts is important.

This article only covered some of the different children’s accounts a family might have. There are other types, and a qualified family divorce lawyer can help you protect them during marital separation.

Planning for the possibility of college in the future can be difficult during a divorce, especially when the children are still young. Don’t let your children’s financial security become lost among your other concerns during a divorce.