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CARLENE S. SUTLIFF v. GREGORY L. SUTLIFF AND FRED K. COLLINS (01/30/85)

filed: January 30, 1985.

CARLENE S. SUTLIFF, APPELLANT AT NO. 2423,
v.
GREGORY L. SUTLIFF AND FRED K. COLLINS, APPELLANTS AT NO. 2495. CARLENE S. SUTLIFF, V. GREGORY L. SUTLIFF, APPELLANT. COMMONWEALTH EX REL. CARLENE SUTLIFF, V. GREGORY L. SUTLIFF. APPEAL OF CARLENE S. SUTLIFF



NOS. 2423 and 2495 Philadelphia, 1982, Appeals from the Order of August 5, 1982 in the Court of Common Pleas of Cumberland County, Orphans Court, at No. 107 Orphans' 1982. NOS. 3117 Philadelphia, 1982, Appeals from the Order of October 4, 1982 in the Court of Common Pleas of Cumberland County, at No. 859 Support, 1981. NO. 3168 Philadelphia, 1982, NO. 3208 Philadelphia, 1982, Appeal from the Orders of Oct. 4, 1982 & Nov. 5, 1982 of the Court of Common Pleas of Cumberland County, at No. 859 Support, 1981.

COUNSEL

Ronald Katzman, Harrisburg, for appellant (at 2423, 3168 and 3208) and for appellee (at 2495 and 3117).

Bonnie D. Menaker, Harrisburg, for appellants (at 2495 and 3117) and for appellees (at 2423, 3168 and 3208).

Spaeth, President Judge, and Beck and Hoffman, JJ.

Author: Beck

[ 339 Pa. Super. Page 532]

INTRODUCTION

Since the separation of Carlene S. Sutliff (hereinafter Wife) and Gregory L. Sutliff (hereinafter Husband) in October, 1981, the affairs of the family have been embroiled in litigation. A divorce action is currently pending in the courts of Cumberland County; this court en banc resolved certain issues pertaining to alimony pendente lite in Sutliff v. Sutliff, 326 Pa. Super. 496, 474 A.2d 599 (1984). We now have before us for disposition several appeals linked by the common issue of the manner and extent to which funds gifted to the Sutliffs' children pursuant to the Pennsylvania Uniform Gifts to Minors Act, 20 Pa.C.S. § 5301 et seq. (hereinafter UGMA), may be used in determining and fulfilling the parents' support obligations. This is an issue of first impression in Pennsylvania.

Nos. 2423 and 2495 Philadelphia 1982 are cross-appeals from the final decree of the Court of Common Pleas of Cumberland County, Orphans' Court Division, in an action brought by Wife pursuant to sections 5308(e) and 5309(a) of the UGMA, 20 Pa.C.S. §§ 5308(e), 5309(a). In this action, Wife sought to remove Husband and Fred K. Collins (hereinafter Collins), a business associate of Husband, as custodians of the children's funds and appoint a trust company as successor custodian, on the grounds that Husband and Collins had acted improperly in using the custodial funds to meet Husband's court-ordered support obligation and other child support expenses. Wife also requested an accounting and asked that the custodians be surcharged for the amounts improperly expended. Husband and Collins denied any impropriety and counterclaimed for attorney's fees. The lower court denied Wife's request for an accounting and refused to remove the custodians or surcharge them. The court also denied the request of Husband and Collins for attorney's fees. Both parties appealed.

The remaining appeals relate to a support action commenced by Wife in November 1981. At Nos. 3117 and 3168

[ 339 Pa. Super. Page 533]

Philadelphia 1982, the parties cross-appeal the lower court's October 4, 1982 order awarding $300 per week for Wife's support and $600 per week for the support of the couple's three daughters. Husband's appeal raises, inter alia, the issue whether the court erred in entering a support order "in favor of children who are independently wealthy and who are economically independent", referring in his argument both to the children's assets held by Husband and Collins as custodians under the UGMA and to the children's income from Clifford trusts. In response, Wife contends that the children's assets do not diminish Husband's duty to support his children out of his substantial assets and income. Wife's cross-appeal raises the issue of the proper effective date of the support order.

Finally, in No. 3208 Philadelphia 1982, Wife appeals from a November 5, 1982 order of the trial court modifying its October 4, 1982 order. The modified order provided that the oldest daughter's college fees and other expenses shall be paid by Husband out of her custodial accounts. Wife's appeal challenges the jurisdiction of the court to enter the modified order, and on the merits raises the question whether it was proper for the court to order the payment of college expenses for a child over eighteen years of age out of custodial funds.

Although the appeals from the original and modified support orders involve a number of issues, our holding on the issues concerning the custodial funds is of primary importance in determining the disposition of these appeals. Accordingly, in the interests of clarity and judicial economy we shall handle all the foregoing appeals together in this opinion.

FACTUAL BACKGROUND

A brief outline of the factual background is necessary to place the issues in context. The Sutliffs were married in 1960. They have four children: Gregory M., age 23; Kimberly,

[ 339 Pa. Super. Page 534]

    age 20; Julia, age 17; and Laura, age 12.*fn1 Husband is a highly successful automobile dealer. His income in 1981 was well in excess of $130,000 and his net worth is approximately three million dollars. Wife is a physician. She stopped working shortly after Laura's birth and did not resume her career until 1980. She then took a part-time position as an emergency room physician earning approximately $26,000 per year. She decided to work only parttime in order to have more time at home with the children (Laura and Julia live with Wife, as does Kimberly when she is home from college).

The assets held by Husband and Collins were gifted by Husband and his parents. In 1981 the total value of the assets held by the custodians for all four children was over $466,000. The assets were divided among the children as equally as possible.

On November 4, 1981, shortly after the separation, Wife filed a complaint for support for herself and the three daughters. The court entered an interim order on December 3, 1981 providing for $400 per week support for the children and no support for Wife. Husband began making three-fourths of the payments to the Domestic Relations Office pursuant to this order from the children's accounts of which he was the custodian. At the same time he also began to pay for various other items for the children from the custodial accounts, including small items like magazine subscriptions. On February 17, 1982, Wife commenced the orphans' court action seeking removal of Husband and Collins as custodians. The court issued its decree in that action denying Wife's petition on August 5, 1982. On October 4, 1982, the court entered a further order in the support action which provided for $300 per week support for Wife and $600 per week support for the children.

[ 339 Pa. Super. Page 535]

This order was modified on November 5, 1982. The modified order provided that Kimberly's college costs and incidental expenses be paid by Husband out of her custodial accounts, and awarded $400 per week support for Julia and Laura. The provisions relating to support for Wife remained unchanged. In fashioning the original and modified support orders, the lower court restated and applied its earlier holding that the custodial funds could be used to meet the child support obligation. The appeals of Wife from the October 4, 1982 support order and the November 5, 1982 modified support order challenge the propriety of using custodial funds in this manner.

EFFECT OF UGMA ON SUPPORT OF CHILDREN UNDER 18

Taken together, these appeals present a multifaceted question concerning the proper role of assets held by custodians under the UGMA in child support proceedings. The appeals in the support action raise the issue of how, if at all, such assets should be considered by the court in assessing the needs of the child and (if the custodian is a parent) the parents' ability to pay, and therefore ultimately in setting the amount of the support order. The appeal in the orphans' court case requires us to determine if and when a parent may use the custodial assets and income to satisfy an existing court-ordered support obligation.

These are issues of first impression in our courts. Although both sides claim the Pennsylvania Supreme Court's plurality decision in Schwartz Estate, 449 Pa. 112, 295 A.2d 600 (1972), supports their position, it is more accurate to say that the supreme court in that case sidestepped the issue. Even if Schwartz were on point, we recognize it as a plurality opinion and therefore not controlling. In Schwartz, the precise question before the court was whether assets held by a decedent as custodian for his minor children under the UGMA were subject to his widow's right of election. Under the applicable statutory provisions at the time, the assets which the decedent conveyed to himself

[ 339 Pa. Super. Page 536]

    as custodian were subject to the election if decedent retained a "power of consumption" of the principal. In reaching the conclusion that a custodian under the UGMA did not retain such a power of consumption, the plurality expressly avoided deciding whether a donor-custodian could properly substitute custodial funds for his legal obligation to support his minor children, because the plurality believed that even if such use were permitted, it would not constitute a power of consumption. See 449 Pa. at 115 n. 2, 295 A.2d at 603 n. 2. In the same footnote, though, the plurality did express doubts that the UGMA could be so construed, stating that "[t]he plain meaning of the language does not indicate that the custodian can use the proceeds of the fund in lieu of an independent prior support obligation." Id.*fn2

We believe that the issues in the case sub judice are best resolved by interpreting the UGMA in light of its purposes and the policies underlying our law of child support. The primary goal of the UGMA was to simplify the procedure for giving securities or money to minors; a great deal of the impetus for its adoption came from the securities industry. See Newman, The Uniform Gifts to Minors Act in New York and Other Jurisdictions -- Tax Consequences, Possible Abuses, and Recommendations, 49 Cornell L.Q. 12 (1963). To achieve this goal, the statute gives the custodian broad discretion with respect to the investment and expenditure of custodial assets, and allows third parties (such as banks and brokers) to deal with the custodian free from liability and without any duty to determine whether the custodian has been duly designated or whether the transaction is within the custodian's power. Id. In other words, the UGMA is intended to obviate the legal problems of dealing directly with minors on the one hand, and the complexities of trust instruments and the limitations on the

[ 339 Pa. Super. Page 537]

    powers of trustees on the other hand, while at the same time protecting the rights of the minor in the gifted property. The statute was also intended to conform with the annual gift tax exclusion provisions of the Internal Revenue Code.

Both parties find support for their positions in the language of the UGMA. Husband argues that the broad discretion which the UGMA gives the custodian allows him to expend custodial funds to satisfy his support obligations. He cites section 5305(b) of the UGMA, 20 Pa.C.S. § 5305(b), which provides:

The custodian shall pay over to the minor for expenditure by him or expend for the minor's benefit so much of or all the custodial property as the custodian deems advisable for the support, maintenance, education and benefit of the minor, in the manner, at the time or times, and to the extent that the custodian, in his discretion, deems suitable and proper, with or without court order, with or without regard to the duty of himself or of any other person to support the minor, or his ability to do so, and with or without regard to any other income or property of the minor, which may be applicable or available for any such purpose.

The lower court agreed with Husband and held that this section gave him the authority as custodian to make support payments out of the children's funds, regardless of his ability to make the payments from his own assets.

Wife contends that the UGMA does not give the parent/custodian the freedom to relieve himself of his duty to provide support for his children by substituting the children's own funds. She argues that section 5305(b) only grants the custodian broad discretion to expend the custodial funds for the benefit of the minor, and that a parent/custodian who expends custodial funds to meet a court-ordered support obligation is expending the funds to benefit himself, because he thereby avoids the need to expend his own assets for the child's support. Wife emphasizes that the custodial property is indeed the children's: she cites

[ 339 Pa. Super. Page 538]

§ 5304(a) of the UGMA, 20 Pa.C.S. § 5304(a), which states unequivocally that the gift irrevocably and indefeasibly vests legal title to the custodial property in the minor.

We agree with the Wife that a father with ample resources of his own may not evade his obligation to support his children by applying to that obligation the children's funds which he or another party holds as custodian. More precisely, we hold that the assets of a minor child held by any custodian under the UGMA may not be considered by the court in setting the level of the support obligation of a parent who is financially able to support his minor child, and we further hold that a custodian under the UGMA abuses his discretion and acts improperly if he expends funds from the custodial accounts for the purpose of fulfilling a parent's support obligation in lieu of that parent's making the payments out of his own income and assets. Because of the different nature of a parent's duty to support a competent child who has reached the age of majority and is attending college, we shall state a somewhat different rule to be applied in such situations which will be explained in greater detail below. We believe this is the only holding consistent with the terms and purposes of the UGMA and with the policies underlying our law of child support.

The primary basis of our holding is the paramountcy of a parent's obligation to support his or her minor children. We have described this duty as "well nigh absolute." Commonwealth ex rel. Scanlon v. Scanlon, 311 Pa. Super. 32, 40, 457 A.2d 98, 102 (1983). Both parents have an equal obligation to support their children in accordance with the capacity and ability of each to do so. Conway v. Dana, 456 Pa. 536, 318 A.2d 324 (1974); Commonwealth ex rel. Hagerty v. Eyster, 286 Pa. Super. 562, 429 A.2d 665 (1981); Commonwealth ex rel. Mainzer v. Audi, 266 Pa. Super. 122, 403 A.2d 124 (1979). A parent is required to sacrifice personal luxuries to provide his or her children with their needs. Conway v. Dana; Commonwealth ex rel. Williams v. Williams, 242 Pa. Super. 550, 364

[ 339 Pa. Super. Page 539]

A.2d 410 (1976); Commonwealth ex rel. Ulmer v. Sommerville, 200 Pa. Super. 640, 190 A.2d 182 (1963). The only limitation is that a support order should allow for reasonable living expenses of the paying parent and not be punitive or confiscatory. Shank v. Shank, 298 Pa. Super. 459, 444 A.2d 1274 (1982); Dugery v. Dugery, 276 Pa. Super. 51, 419 A.2d 90 (1980).

The above cases are clearly predicated on the principle that the burden of supporting minor children is to be borne by the parents, and that the courts will not allow a minor child to fend for himself when his parents are able to support him. In Commonwealth ex rel. Byrne v. Byrne, 212 Pa. Super. 566, 568, 243 A.2d 196, 197 (1968), we held that "[i]t is well established that a father of sufficient means must support his child . . . and it is no defense that . . . the child itself has independent means." Because section 5304(a) of the UGMA provides that a transfer of property to a custodian constitutes an irrevocable present gift to the minor, in applying the principle of Byrne we must consider the custodial property the property of the child, whatever its source.

Section 5310(a) of the UGMA, 20 Pa.C.S. § 5310(a), states a rule of construction common to many uniform acts, that the UGMA should be construed in a way which makes uniform the law of those states which have enacted it. The overwhelming majority of jurisdictions which have considered the issue have held that a parent who is able to support his children may not use custodial funds to discharge his support obligation, and that if the parents are financially able, courts should not consider custodial assets in setting the amount of support to be paid. In Gold v. Gold, 96 Misc.2d 481, 409 N.Y.S.2d 114 (Sup.Ct. 1978), the New York court was faced with the issue "whether the assets of children [held by a parent as custodian under the UGMA] should be disclosed as ...


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