Creditors can garnish jointly owned savings and checking accounts. Learn about your rights.
Creditors might be able to garnish a bank account (also referred to as "levying" the funds in a bank account) that you own jointly with someone else who isn't your spouse. A creditor can take money from your joint savings or checking account even if you don't owe the debt. What follows is a description of when a creditor may be able to attach the account and what you can do to protect yourself.
Jointly Owned Accounts: Rights and Limitations
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.
Laws vary on the extent to which creditors can garnish joint accounts. In some states, creditors can't take more than half of the funds in a joint account. However, in other states, creditors may be able to garnish the entire joint account.
Traceable Contributions
Even though creditors are often allowed to garnish a joint account up to the full balance, it might not be able to do so in every situation. In many states, you can protect funds from garnishment if you can show that the money in the account came from you, not the debtor. You must be able to prove that the money is traceable to what you put into that account. If you are successful, then the creditor cannot garnish funds to the extent of your contributions.
It is much easier to protect the account if you can prove that all of the funds are traceable solely to your contributions. You may have difficulty, however, if both you and the debtor put money into the account together. In that case, you must provide as much proof as possible that will allow a court to clearly trace those funds back to you.
How Do I Prove My Traceable Contributions?
The most important thing to do is establish and maintain good record-keeping practices before any garnishments happen. Barring that, gather as many documents as you can, covering the period leading up to the garnishment. Acceptable documents you can use to prove traceable contributions include:
- paystubs
- deposit slips, electronic transfer/automatic deposit receipts, and bank statements
- government pension or benefits statements
- insurance statements, and
- pension and annuity statements.
Convenience Accounts
Another way of establishing traceable contributions is to show that while the account was a joint account on paper, it was, in reality, a convenience account. This is a common scenario with joint account owners such as elderly parents and adult children who are added to the parents' account for convenience—the money belongs to the parent, but because it is a joint account, the child can go to the bank for an elderly parent.
Most banks in most states don't offer official "convenience accounts." Instead, they are created informally and by agreement between the account owners.
To prove a convenience account, you have to pass what is called the "reality of ownership" test. You must show that the reality of ownership was that the account was held solely by you, not the debtor. 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.
Exempt Funds
You may protect certain money in the account if it came from exempt sources. Social Security, worker's compensation, disability, unemployment, other government benefits, retirement income, child support, and even a portion of your wages (sometimes 25% or more) are exempt from garnishment under federal and state laws. They do not lose their exemption status once they are deposited into the joint account. So long as you are able to prove that the source of contributions into the account came from exempt sources, then those funds are protected.
Federal rules prohibit banks from freezing certain amounts in your account if the contributions came from certain federal benefits. If you received federal benefits and they were deposited in the account, you may have some relief. The bank must allow you access to money equal to at least two months' worth of federal benefit payments that were last deposited into your account prior to the garnishment. This may mean your entire account is exempt, even if jointly held.
(To learn more, see the articles in our Property Exemptions topic area.)
How Can I Protect Against the Garnishment?
Once a court sends garnishment papers to your bank, the bank usually freezes your account. It won't turn the money over to the court or the creditor yet. Instead, it will hold your money for safekeeping pending the outcome of the garnishment process.
When you are served with the notice of garnishment, you must act immediately. Included with your garnishment papers is a notice of hearing. This hearing is your opportunity to prove to the court that you made traceable contributions and/or that some or all of the funds deposited in the joint account are exempt. You should request the hearing in writing, stating your reasons, within the deadline specified on the notice. If you do not attend the hearing, then the court may rule in the creditor's favor, and the bank will then pay the proceeds of the garnishment to the court and/or the creditor.
