When you own an account jointly with another individual, the law usually presumes that you each have equal rights to funds held in that account. So, when a creditor attempts to garnish that account, it typically doesn’t have to investigate whether you contributed more money to the account than the co-owner. Unfortunately, this could mean that the money in your account could be garnished to pay for the co-owner’s debt, a debt that you never owed.
However, a recent case out of Florida’s Fourth District Court of Appeals, Branch Banking and Trust Company v. ARK Development/Oceanview, LLC, makes clear that when a third party named on the account claims ownership of the account’s funds, a judgment creditor’s success hinges on proving that the garnished funds belong solely to the judgment debtor.
What is a Judgment Debtor’s Status on the Account?
Creditors may garnish only property owned exclusively by the judgment debtor or debts due exclusively to the debtor. This does not mean that a judgment debtor can shield his assets from garnishment by simply depositing his funds into an account held jointly with another party. Where the debtor and third party maintain a joint account (other than an account held as tenants by the entirety, which is subject to different rules), a creditor may garnish that portion of the account attributable to the debtor. Where the debtor is merely a fiduciary or beneficiary and possesses no present interest in the account, however, the creditor may not access the account’s assets.
How do you Prove Ownership of the Funds?
Even if someone other than the debtor claims an interest in an account, a judgment creditor may still garnish the account if it can prove the debtor holds an interest in a portion of the funds. Judgment creditors should pay attention to who is named on the account, as there is a strong presumption that the assets in a bank account belong to the named account holder(s).
In ARK Development, the creditor targeted an account that named the debtor as beneficiary and also granted him power of attorney, but the account explicitly self-identified as an individual account in the debtor’s wife’s name. Following procedures set out in Chapter 77, Florida Statutes, the debtor’s wife filed an affidavit claiming that the creditor improperly garnished the account because the funds belonged to her.
Looking at who actually and “in good conscience” owned the funds in the disputed account, the court found that the wife presented sufficient evidence to suggest her debtor-husband did not own any of the funds in his individual capacity. While the creditor alleged the debtor maintained an equitable interest in the account, the creditor failed to present evidence revealing the source of any of the account’s funds or the debtor’s exclusive control over any portion of the account. The court therefore held that the account was immune from the creditor’s writ of garnishment.
It is important to note that in a joint spouse bank account, the creditor could argue to the judge that even if the husband put the money in the account, when he did so he made a gift of 50% of the money to wife-debtor by virtue of this being a joint account. If husband did gift half the money to his wife the money gifted would thereafter lose any protection. The wife’s ability to write checks from the account can support a creditor’s theory that husband has gifted half of the money to his wife-debtor.
Some factors to establish traceable contributions:
- pay stubs
- deposit slips, electronic transfer/automatic deposit receipts, and bank statements
- government pension or benefits statements
- insurance statements, and
- pension and annuity statements.
Some factors that may help establish a convenience account include the following:
- you were the original sole owner and later added the debtor to the account
- you added the debtor out of convenience, for example, assist with bill paying or banking when you were or are unable to do so
- the debtor did not deposit his or her own funds in the account
- the debtor did not make personal withdraws from the account, or
- the debtor’s transactions benefited you, such as writing checks for your gas bills.
What is Tenants by the Entirety?
Many married people incorrectly believe that their jointly owned property is protected from their creditors. Joint ownership with rights of survivorship offers no asset protection, and a creditor of either spouse may seize the interest the debtor spouse holds in joint tenant property and force the property’s sale.
However, “tenants by the entireties” ownership affords excellent asset protection benefits. Tenants by the entireties is a special form of joint tenancy ownership which is available only to married persons. Under Florida judicial law, in order to qualify as tenants by entireties property, the property in question must have 6 characteristics:
- joint ownership and control,
- identical interest in the property,
- the interest must have originated in the same instrument,
- the interest must have commenced simultaneously,
- the parties must have been married at the time they acquired the property, and
- the surviving spouse will own the property after either spouse dies.
Both spouses must acquire their ownership interest in an entireties asset at the same time during their marriage. Adding a spouse to an account or title of an asset owned prior to your marriage will not create tenants by the entireties ownership or protection. Premarital accounts should be closed, and the married couple should open a new entireties account.
Asset Protection of Tenants by Entireties Property
In the case where both spouses are jointly indebted to a particular creditor, that creditor can involuntarily seize tenants by the entirety property. Tenants by the entireties protection exists only if a creditor has a claim against only one of the spousal owners. The general rule is that separate judgments in the favor of one creditor based on separate causes of action against each spouse does not constitute a joint judgment against both spouses.
In Florida, unlike most other states, all types of property, including all real property, tangible personal property, and intangible personal property, may be owned by a married couple as tenants by the entireties. Whether a married couple owns property as unprotected joint tenants with survivorship or as protected tenants by the entireties depends on the intent of the spouses.
The Florida Supreme Court has said that any real or personal property owned jointly by a husband and wife is presumed to be owned as tenants by the entireties. Additionally, Section 655.79 of Florida Statutes states that any bank account owned by husband and wife is presumed to be a tenants by entireties account unless there is clear and convincing evidence of their contrary intent. A creditor could rebut this presumption of entireties bank accounts by showing that the property ownership does not possess all six entireties characteristics or that the husband or wife indicated an intent to own the property in some other manner. Incorrectly filling out a bank account application and/or signature card is the most common error resulting in a legal disclaimer of entireties protection.
Termination of Tenants by the Entirety:
A divorce between the spouses immediately converts the tenants by the entireties ownership into a joint tenancy as tenants in common between the former spouses. In that case, the assets of the debtor spouse would immediately be exposed to his or her creditors. Likewise, a death of one spouse terminates tenants by the entireties and vests the property solely in the surviving spouse. If the surviving spouse has creditors, the asset protection afforded by the tenants by the entireties ownership is lost.