UGMA/UTMA Accounts in a Divorce

Michael J. Clonts, Esq.

undefinedLast week we discussed 529 college savings plans and how they are handled in a divorce proceeding. In a similar vein, we will discuss UGMA and UTMA accounts.

The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) are acts that permit trust accounts to be set up as vehicles to hold and protect assets for minors until they arrive at the age of majority.

These accounts can be comprised of stock, bonds and mutual funds, but do not allow higher risk investments or activities such as buying on margin.

Unlike other assets of the marriage, this account is considered property of the minor child and therefore, creates a custodial relationship with the parents, as parents are only permitted to manage the accounts not to withdraw from them.

The custodial relationship to the parents on the account will expire once the child reaches the age of majority (which varies from state to state), and the money in these accounts automatically transfer to the beneficiary child upon reaching majority age without any condition as to how the money is used.

Normally in an Arizona divorce proceeding, anything accumulated during the marriage is considered community property that must be equitably divided. What makes these types of accounts unique is that, unlike other monies held in trust for a child, such as under a 529 plan, UTMA and UGMA accounts are not a divisible asset, even though all of these accounts are held for the benefit of the minor child.

So, if the money doesn’t belong to the parents, and isn’t divisible as part of a divorce, why both speaking of UGMA/UTMA accounts? The answer is simple: someone has to direct and manage the accounts until the children become legal adults. Making these types of financial decisions is something that has to be addressed as much as any other legal decision made for the minor children, and, especially in a contentious divorce, the parents may not agree on who should control the assets for the child’s benefit.

If you find yourself or a loved one in need of a divorce with children and you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at480.630.2464 to schedule your free 30 minute consultation.

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