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Proper Use of UTMA’S in Marital Settlement Agreements

Proper Use of UTMA’S in Marital Settlement Agreements




Charles F. Vuotto, Jr., Esq.



Most of us have drafted martial settlement agreements (MSA’s) including provisions that apply all or some children’s custodial funds to defray the cost of educational expenses or other child-related obligations. This column addresses the propriety of doing so when those custodial funds are held in an account created under the New Jersey Uniform Transfers to Minors Act (UTMA).[1]

The Appellate Division recently addressed the responsibility of parents to their children as it pertains to UTMA accounts in the unreported case of Rosemary Ferraro v. Guy Ferraro[2]. In Ferraro, the appellate court stated that the UTMA allows for the “transfer by irrevocable gift to…a custodian for the benefit of a minor.”[3] For securities, such a gift occurs when the transferor registers the property in his or her own name, “followed in substance by the words: ‘as custodian for (name of minor) under the New Jersey Uniform Transfers to Minors Act.”[4] Any transfer so made “is irrevocable, and the custodial property is indefeasibly vested in the minor.”[5]

Once the gifted property is delivered, “acting in a custodial capacity, [the custodian] has all the rights, powers, and authority over custodial property that unmarried adult owners have over their own property.”[6] The custodian has the responsibility to “[c]ollect, hold, manage, invest, and reinvest custodial property.”[7] However, custodial property must at all times be kept “separate and distinct from all other property in a manner sufficient to identify it clearly as custodial property of the minor.”[8]

Although the UTMA invests the custodian with discretion to “pay to the minor or expend for the minor’s benefit so much of the custodial property as the custodian considers advisable for the use and benefit of the minor,”[9] such a payment or expenditure “is in addition to, not in substitution for, and does not affect any obligation of a person to support the minor.”[10] Unless the terms of the gift expressly state otherwise, the custodian must “transfer the custodial property to the minor or to the minor’s estate upon the earlier of” 1) “[t]he minor’s attainment of 21 years of age”; or 2) “[t]he minor’s death.”[11]

If the custodian is suspected of violating his or her fiduciary obligations, the minor’s guardian, legal representative, or adult relative “may apply to the court to remove the custodian for cause and to designate a successor custodian.”[12]  These individuals may also “apply to the court for . . . [a]n accounting by the custodian.”[13]

In the trial level case of Roberts v. Roberts,[14] the court addressed the issue of whether a parent-custodian can be compelled to use custodial assets to defray private secondary school costs. The court concluded that the custodian’s exercise of discretion is entitled to the same respect accorded a trustee,[15] and that, under the circumstances of that case, the court would not override the custodian’s refusal to use UGMA or UTMA assets. The court reached this conclusion without deciding whether the parents in that case would be deemed obliged to pay for the child’s schooling from their own funds.[16]  However, this begs the question of whether it is appropriate to use those UTMA funds to defray a parent’s legal obligations to his or her child.[17]    The Roberts court referred to the holding in Cohen v. Cohen[18], which addressed the limitations on the use by a parent-custodian of the assets held under the UGMA and UTMA. The court held that such assets may not be used to fulfill a financially able parent’s support obligation. The Cohen court held that “despite the broad language of the statute purporting to confer wide discretion on the custodian, a custodian who is also a parent cannot properly use assets of a UGMA account to defray the parent’s legal obligations to a child if the parent is financially able to support the child.”[19]   However, referring to persuasive out-of-state authority construing the uniform law of their states, the Cohen court noted that a custodian of a UGMA account may nonetheless not pay, or reimburse him or herself for expenditures that he or she was “legally obligated to make from…own funds for the benefit of the minor who is the beneficiary of the custodial account.”[20]  The Roberts court further clarifies (citing to Cohen) that, “the prohibition of using UTMA custodial funds to defray a parent’s legal support obligation derives not from the UTMA, but from the general principle that “the estate of a minor may not be used for his support and maintenance if those who are legally responsible for the minor have sufficient funds to enable them to fulfill their responsibilities.”[21] The property of a minor held in a custodial account is indefeasibly granted to that child.”[22] Notwithstanding the foregoing, the Cohen court qualifies that the limitation of use of a minor’s estate applies only “if the parent is financially able.”[23] A parent’s support obligation adapts to the parent’s ability to pay under the child support guidelines.[24] It is unclear whether Cohen would allow invasion of custodial funds when a parent is temporarily unable to pay for tuition, inasmuch as temporary reductions in income generally do not adjust a parent’s support obligation.[25]

The Roberts court notes, however, that the extent of a child’s resources is a factor to be considered in the analogous determination of parents’ obligation to pay for college pursuant to the Supreme Court decision in Newburgh v. Arrigo.[26]  Our Supreme Court specifically addressed consideration of assets of the child “held in custodianship or trust,” presumably contemplating possible use of those funds in appropriate cases, even though the parents would otherwise be obliged to pay the balance of costs.[27]

As a practical matter, as matrimonial practitioners we often represent divorce clients who have created UGMA or UTMA accounts for their children.  Often both parties agree they intended these funds to be used for their children’s educational expenses, and more than likely did not realize they were making irrevocable gifts to the children, and that the funds may not necessarily be applied as the grantors desired.  It may very well be that a compromise, so to speak, may be struck between these opposing principles by careful drafting of our agreements.  Perhaps language as follows satisfies all concerns:

The parties acknowledge that they have maintained UGMA/UTMA accounts for the benefit of their children as follows:  _______.   The parties recognize that the aforementioned UGMA/UTMA accounts were created under New Jersey Uniform Transfers to Minors Act.  N.J.S.A. 46:38A-19(A)(1), and are the property of the children in accordance with applicable New Jersey law and do not represent marital assets subject to equitable distribution incident to their divorce. Therefore, the parties do not intend to allocate or distribute those accounts, which belong to the children. Nevertheless, the parties also acknowledge that, with regard to their respective responsibilities for educational expenses for the children, that the Supreme Court in Newburgh v. Arrigo, 88 N.J. 529 (1982), provided various factors to be included by the court including the following: “The financial resources of the child, including assets owned.” As such, the parties contemplate, (although do not designate hereby) that the children will use their various custodial accounts for their post-high school educational expenses and that the parties’ respective obligations to contribute to the children’s post-high school educational expenses shall only  arise after those custodial accounts have been duly applied as is anticipated. If the children do not act as anticipated, such event shall constitute a change in circumstances requiring a review of the provisions of this Agreement allocating the parties’ respective responsibilities for post high school educational expenses or an application to the court to determine how much should be contributed by the child.

This proposed language may or may not satisfy the competing interests at play.  It still may go too far in compelling a child to apply his or her funds. On the other hand, it may unnecessarily restrict the application of funds that, in all honesty, were always intended for the stated purpose (i.e., educational expenses for the child in most instances).

I do believe that the protocol created by this proposed language, however, is consistent with the trend in the Appellate Division cases, which is starting to take note of the Newburgh factor more so than in the past. Practioners should be warned, however, that the case law is still not clear on whether it is reasonable or permissible to let the parents decide that the children have to contribute before either parent has to do so. That portion of above language should probably be modified depending upon the facts of any particular case including, for example, how much money is in the identified UTMA/ UGMA accounts and possibly depending upon whether the parents reduced their own ability to pay for college by making gifts to the child.    Also, just for the sake of argument, it will be interesting to see if the Appellate Division ever addresses whether the parent’s expectations should be different if the funds in the UTMA/ UGMA account being identified in the divorce agreement were not gifted by the parents and/or if neither parent is the custodian of the account(s) in question. The above language, therefore, should be viewed as a starting point for discussion in the hopes that a consensus may be reached as to the appropriate manner in which children’s funds may be referenced in our divorce agreements.


The author wishes to thank Amanda Trigg an associate managing editor of the New Jersey Family Lawyer and partner in the firm of Lesnevich & Marzano-Lesnevich, as well as Brad D. Shalit who is a partner in the estate & tax department of Connell Foley, LLP for their assistance with this column. 



[1] N.J.S.A. 46:38A-1, et. seq

[2] Docket No.A-3844-09T2

[3] N.J.S.A. 46:38A-8

[4] N.J.S.A. 46:38A-19(A)(1)

[5] N.J.S.A. 46:38A-24

[6] N.J.S.A. 46:38A-31

[7] N.J.S.A. 46:38A-26

[8] N.J.S.A. 46:38A-29

[9] N.J.S.A. 46:38a-32

[10] N.J.S.A. 46:38A-34; see also Colca v. Anson, N.J. Super. 405, 416 (App. Div. 2010) (“A child’s assets may not be used to fulfill a financially able parent’s support obligation.”); Cohen v. Cohen, 258 N.J. Super. 24, 30-31 (App. Div.) (“[A] custodian who is also a parent cannot properly use assets of a UGMA account to defray the parent’s legal obligations to a child if the parent is financially able to support the child.”), certif. denied, 130 N.J. 596 (1992)

[11] N.J.S.A. 46:38A-52(a),(c)

[12]N.J.S.A. 46:38A-47.

[13] N.J.S.A. 46:38a-48(a)

[14] 908 A.2d 1273, 388 N.J. Super. 442 (Ch. Div. 2006)

[15] The discretion afforded a trustee will not be disturbed so long as a fiduciary acts in good faith with care, prudence and ordinary discretion, within the scope of his powers, his actions cannot be assailed.  See generally In re Wehrhane’s Estate, 41 N.J. Super, 158, 166 (Ch. Div.) 1956), affirmed on other grounds 23 N.J. 205 (1957).

[16] The Roberts court stated that the UGMA and UTMA as construed by our courts, it is uncertain whether UGMA or UTMA assets may be used for the child’s tuition under the circumstances of this case. However, the court need not resolve that issue because, more importantly, Ms. Roberts has failed to establish the grounds for overriding Mr. Roberts’s decision as custodian.  Roberts v. Roberts, Id. at 443

[17] Roberts v. Roberts, supra. at 443

[18] 258 N.J.Super. 24, 609 A.2d 57 (App.Div.), certif. denied, 130 N.J. 596, 617 A.2d 1219 (1992)

[19] Id. at 30-31, 609 A.2d 57.  In reaching that conclusion, the court affirmed a trial court decision that compelled a mother to reimburse her daughter for withdrawals from a UGMA account that were used for the child’s living expenses, including clothes, food, shoes, dry cleaning bills, medical insurance and doctors’ services. Also inappropriate were withdrawals to reimburse the mother’s attorneys fees, incurred in connection with her custody dispute with the child’s father. The daughter did not contest the custodian’s use of UGMA assets for camp and schools.  Id.

[20] Cohen v. Cohen, supra, 258 N.J.Super. at 29-30, 609 A.2d 57.  Roberts v. Roberts, supra. at 443

[21] Cohen v. Cohen, supra, 258 N.J.Super. at 30, 609 A.2d 57

[22] N.J.S.A. 46:38-24 (stating that transfer is irrevocable and property is indefeasibly vested in the minor, subject to the custodian’s powers outlined in the act)

[23] Id. at 31, 609 A.2d 57

[24] See generally Child Support Guidelines, Appendix IX-A to R. 5:6A

[25] See Innes v. Innes, 117 N.J. 496, 504, 569 A.2d 770 (1990) as cited in Roberts v. Roberts, supra. at 444

[26] 88 N.J. 529, 545, 443 A.2d 1031 (1982) (stating that the court should consider, among other factors, “the financial resources of the child”)

[27] Roberts v. Roberts, supra. at 445

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