The strategy of a making a gift to a minor under the UTMA in Pennsylvania to reduce the size of a marital asset just prior to the filing of a a divorce 
- The factual background and the challenge
We were consulted by a wealthy woman who was contemplating a divorce. At the time, there was no disharmony in the marriage, the parties were living together as a married couple, and neither had spoken to the other about a separation or divorce. However, our client was an accomplished interior designer and an architect who made her fortune by merging talent with hard work. By contrast, her husband, although only in his mid-forties, decided to retire and live off of his wife’s income. Moreover, the husband wanted nothing to do with the couple’s ten year old daughter. This caused our client to reach the conclusion that she wanted to end the marriage, but before taking any action, she wanted to drain her funds out of the joint bank account, and at the same time provide for her daughter’s wellbeing in the future if something happened to our client since it was obvious that the child could never rely on her father.
- Our research and proposed solution
We recognized that under Pennsylvania law, after a divorce is filed, all assets are frozen and are deemed marital assets that neither spouse can spend without court approval. On the other hand, before the divorce action is instituted there generally is no restraint on how a spouse spent money in joint accounts, unless the court finds there was a brewing or actual problem in the marriage, and that one spouse dissipated marital funds. Here there was not yet any brewing problem, but we needed to find law to determine whether a gift to the child would be deemed dissipation. We thus looked into whether our client could accomplish her goal by making a gift to her daughter under the Pennsylvania Uniform Transfers to Minors Act (“UTMA”) 20 Pa.C.S.A. § 5301, et seq., which is often referred to by lawyers and bankers who have been around for more than a few years by the well-known name of the law it replaced, the Uniform Gifts to Minors Act. “The purpose of PUTMA is to provide an inexpensive, easy way for giving property to minors. Sutliff v. Sutliff, 515 Pa. 393, 528 A.2d 1318, 1323 (1987). Section 5304 of PUTMA addresses the irrevocable nature of transfers to PUTMA accounts and provides:
A person may make a transfer by irrevocable gift to, or the irrevocable exercise of a power of appointment in favor of, a custodian for the benefit of a minor pursuant to section 5309 (relating to manner of creating custodial property and effecting transfer).” 20 Pa.C.S.A. § 5304. Whatever its source, custodial property that is held pursuant to Section 5304 is the property of the minor child. Sutliff, 528 A.2d at 1323.” Sternlicht v. Sternlicht, 2003 PA Super 95, (2003) aff’d, 583 Pa. 149, 876 A.2d 904 (2005)
In the area of divorce, in Radakovich v. Radakovich, 2004 PA Super 82, ¶ 23, 846 A.2d 709, 717 (2004) The husband set up an account for the couple’s son under the UTMA to cover his future college education. The account, at the time of the divorce had grown to over $100,000. The trial judge held that the gift made the funds the property of the son. On appeal, the Wife’ contention was that the trial court erred in concluding the bank account was subject to the Pennsylvania Uniform Transfers to Minors Act (PUTMA), 20 Pa.C.S.A. § 5301–5310 and that it should have been considered for equitable distribution under the Pennsylvania Divorce Code 23 Pa.C.S.A. §§ 3501 and 3323. The wife lost on appeal, and the transfer of funds to the son was upheld. The court found that the deposit of funds from joint accounts during the marriage under the Pennsylvania Uniform Transfers to Minors Act (PUTMA) to brokerage account resulted in an irrevocable gift to son, which was not subject to equitable distribution between the husband and wife.
Since our client was earning in excess of $5000 per week as her take home pay, she decided to withdraw from the bank full $575,000 that had accumulated in the account, all of which had been deposited by her from her earnings. The client did not need to worry about current expenses or even a rainy day fund because she believed that her earnings were sufficiently robust. Of course a very attractive benefit from the withdrawal is that it would shrink the size of the marital estate, and potentially stop her husband from walking away with money she earned. A few months later she filed for divorce.
The key to the disposition of the case was the strictness of UTMA with regard to the use by the parents of money gifted to a child. Our client’s deposit of the funds into an account for her daughter was intended to be a gift, and all of the formalities were followed to comply with the UTMA. “To establish a valid inter vivos gift, the claimant must do so by clear, precise, direct and convincing evidence. To constitute a gift inter vivos there must be shown an intention to make an immediate gift and constructive delivery to the donee.” Sternlicht (Supra.), 822 A.2d at 739. The account was titled in our client’s name, but not as her property. Instead the account had a legend imprinted by the bank showing that our client was acting in the capacity as the custodian for her daughter. Pursuant to the UTMA, at 20 Pa. C.S.A. § 5311, the deposit of the funds into this account was irrevocable, because “the custodial property is indefeasibly vested in the minor.” Moreover, under the UTMA (id. at §§ 5313 and 5314), our client was listed on the account only nominally for her daughter, the real party in interest on the account. Furthermore, our client could not exercise any rights, powers or authority over the account, except in her fiduciary capacity under the UTMA; and expressly, not for herself.
This strategy was a good one. When the husband challenged the transfer and sought to have it reversed and the funds declared part of the marital estate, he did not find a friendly ear in the judge; nor did he win on appeal.