How Divorce Can Impact Children’s Financial Accounts

How Divorce Can Impact Children’s Financial Accounts

By Alyssa Miller CFP®, CDFA®, CLTC® On 02/13/2025

Navigating the divorce process can be particularly challenging for families. While dividing assets is rarely easy in any scenario, determining how to divide accounts you started for your children during your marriage can raise additional questions and concerns.

Types of Children’s Financial Accounts

There are several types of accounts parents open for their children. Some of the most typical accounts are 529 plans for education-related savings, joint checking accounts, trust funds, interest-earning accounts, and custodial accounts.

Education savings accounts (529 plans)

These plans are named after Section 529 of the Internal Revenue Code, are not deductible, and offer other tax advantages. 529 plans help families pay for future qualifying education-related expenses like tuition or post-secondary training.

In most cases, the custodial parent in a divorce should be the 529 plan account owner. Because these plans are considered assets of the account owner, how the courts handle these accounts during the division of marital assets is sometimes difficult to predict. In some cases, a judge will exclude 529 plans from the division of assets, in other cases they may require half the value of the plan be paid to the non-custodial parent.

Joint checking accounts

A joint checking account is a bank account where multiple designated account owners can make deposits and withdrawals. Sometimes in the case of parent and child joint accounts, there are limits placed on withdrawal amounts or number of transactions. Parents often set up these accounts to help teach their children money management best practices for their future.

Trust funds

During a divorce, it’s important to ensure that the trust you’ve set up for your child will still belong to them in full. Prior to divorce, make sure the trust names them as the beneficiary and not your spouse. Oftentimes the other spouse will be named in a trust as the successor trustee, and in the case of divorce, you may want to remove their name from the account.

Interest-earning accounts

Much like joint checking accounts, often parents will start interest-earning savings accounts to help their children learn valuable financial management skills to take into adulthood. In many cases, one or both parents will connect these accounts with their own in order to manage them efficiently or to keep an eye on them.

Custodial accounts

The assets of custodial accounts belong to the child with the parent managing the account for their benefit. There are two main types of custodial accounts: Uniform Gifts to Minors Act accounts and Uniform Transfers to Minors Act accounts. While both of these types of accounts are the property of the child, they are managed by a parent until the child is 18. Parents can only withdraw funds from these account for the child’s needs and cannot use the funds for their own benefit.

With any financial account where you and your spouse are both listed as account owners, you may reach out to your attorney to ask the courts to freeze them, prohibiting either of you from withdrawing funds or making new deposits. In the case of accounts that you started for your children, the same rule often applies.

Considerations regarding your children’s financial accounts can be particularly important for any family going through the divorce process. Because divorce involves making complicated financial decisions, it’s helpful to have an expert looking out for your interests. A Certified Divorce Financial Analyst® can make family-related financial issues easier to understand, so you feel more confident about the decisions you make. 

Tagged with: divorce, cdfa, idfa, finances, dividing accounts for children