What Happens to Accounts for Children in Divorce?

Oftentimes, during marriage, parents make financial plans for their children’s future, particularly their educational future. Considering the rising costs of higher education, many parents believe this to be an essential part of their financial plan during their marriage. The question, however, is what happens to these types of accounts when two parents decide to divorce?

There are many types of custodial accounts or college savings accounts. Two of the most common such accounts that we often address in divorce are a 529 Plan and a Uniform Transfers to Minors Act (“UTMA”) account. A UTMA account is a savings account that an adult controls for the benefit of a minor, but the account is ultimately transferred to the child when the child becomes an adult. Funds accumulated in a UTMA account can be withdrawn at any time so long as they are being used “for the benefit of the child.”

A 529 Plan is similar, except that the funds accumulated in the account are owned by the parent or custodian and must be used specifically for a child’s qualified education expenses, such as tuition and fees and room and board. As the parent controls the funds in the account, use for any other purpose may result in penalties and tax consequences.  While there are many other features of these accounts, it is best to speak with a financial professional to ascertain the pros and cons of each. Specifically, each account has different tax advantages and consequences.

For purposes of divorce, college savings accounts, such as 529 Plans, may be subject to property division. Pursuant to Section 20-107.3 of the Code of Virginia, any asset earned or acquired during the marriage by either spouse is presumed to be marital property subject to equitable distribution. Oftentimes, a college savings account falls under this categorization because the parties created and contributed to the account during their marriage. In addition, some Virginia courts have held that because the 529 Plan can be revoked (albeit not without penalty or negative tax consequences), a 529 Plan is similar to a savings account that would otherwise be subject to equitable distribution. Further, because a Virginia court is unable to distribute property in a divorce to a non-party, which in this case would be the parties’ child or children, the court cannot order that the 529 Plan or the funds held in such an account be given to the parties’ child or children.

This is somewhat perplexing to many clients, who view the funds accumulated in a 529 Plan as money that belongs to the children. In that case, the parties may reach a settlement that directs that one parent remain the custodian of a child’s 529 Plan and that the parties agree that the funds will not be withdrawn for any purpose other than for the child’s qualified education expenses. The parties may also add terms in any such agreement about any continuing periodic contributions to the 529 Plan, an age cap at which the funds must be used for the child’s education expenses, and what will happen with excess funds held in a 529 Plan, or agree to exchange statements for a child’s 529 Plan on a regular basis so both parents, even after divorce, are kept informed.

UTMA accounts, on the other hand, may not be subject to division in a Virginia divorce. Because the funds held in a UTMA account are gifted to the child and are the property of the child for which the account is held, the funds are not part of the marital estate. As such, the funds held in a UTMA account may be sheltered from equitable distribution in a divorce.

That being said, everyone’s financial circumstances are different, and there are many options for addressing 529 Plans and UTMA accounts in a divorce. So, it is important to discuss your particular case with an experienced family law attorney who can explain all options to you.

What Is the Difference Between an Annulment and Divorce?

By Jenna Maresco, Esq.

Many might remember the famous “Friends” episode where Ross and Rachel seek an annulment after getting married in Las Vegas. Ultimately, they are denied an annulment by a judge and forced to divorce instead. It begs the question prospective clients often ask, “What’s the difference between an annulment and divorce?”

The simple answer is, in the rare situation when an annulment is granted, it is as if no marriage ever existed. Under Virginia law, there are only a few grounds for an annulment of marriage. Rarely do those apply to most couples, leaving divorce as the only legal means to end their marriage.

Now, let’s get a bit more technical. Under Virginia law, a party can file a suit for annulment under very limited circumstances. First, there may be grounds for an annulment if the parties did not follow the proper procedure for getting married, which requires obtaining a license and solemnizing the marriage. An annulment may also be granted when the marriage itself was void for one of the following reasons: (1) the marriage was entered into before an existing marriage for either party had been legally dissolved; or (2) a marriage was entered into between related individuals, including an ancestor and descendant, brother and sister, or uncle/aunt and niece/nephew.

In addition, there may be grounds for an annulment when one party to the marriage did not have the capacity to consent to the union, whether because of mental incapacity or infirmity, or because one party was under the age of 18. Finally, a party may file a suit for annulment if either party is:

  • Impotent at the time of the marriage;
  • A convicted felon
  • Pregnant by an individual other than her husband;
  • Found to have fathered a child with a woman other than his wife within 10 months after the marriage; or
  • Found to have been involved in prostitution without the knowledge of the other party.

A party cannot obtain an annulment if the party seeking an annulment has cohabitated with the other party after knowledge of the facts that party is basing his or her claim for annulment on. A suit for annulment is also unavailable when the parties have been married for at least two years.

If the few limited grounds for annulment do not apply, then a party must end his or her marriage through a divorce proceeding.  Even if a party believes he/she has grounds for annulment, it is important to note that most grounds render the marriage as voidable as opposed to outright void – meaning even then, there is no guarantee that a court would grant an annulment.

There are certainly different implications of proceeding with an annulment versus proceeding with a divorce. If there are children, a party can still seek custody and child support, just like any other unmarried parent. However, in those cases, a court has no authority to award spousal support or divide the parties’ assets and debts if it annuls the marriage. Because of the complexities involved in annulments vs. divorces, it is important to clarify the difference early on in a consultation.

If you find yourself in this situation, set up a consultation with one of Curran Moher Weis’ family law attorneys to determine whether your marriage dissolution qualifies as an annulment or divorce, and we’ll set you on a path to the most effective resolution.

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When is Sole Custody Justifiable in Virginia?

Potential clients often ask about the likelihood that they will be awarded sole custody of their child. This prediction, however, is not so easily forecast. In Virginia, there is both legal and physical custody, and there can be both sole legal and/or sole physical custody awarded or agreed to in any case. Legal custody refers to a parent’s ability to make major decisions regarding a child. So, sole legal custody is the situation where only one parent is responsible for making all decisions regarding a child. Physical custody refers to daily care of a child. When a parent is awarded sole physical custody of a child, he or she is the parent responsible to care for that child. Nevertheless, in all situations involving custody, the courts weigh a number of factors in determining what is in the best interests of the child.