Can joint accounts and shared assets be garnished?
Most people would react to this question in the same way: absolutely NOT. It would be totally unfair for a creditor of one person to garnish your wages or bank funds when you are not a co-signer on the debt. Your reaction would be even more vehement if you were not married to the debtor, or the creditor tried to garnish your separate account. You might think such an action would be unlawful everywhere, due to a sense of fundamental unfairness.
If that is your reaction, you would be wrong. Though the rules for garnishing joint accounts, joint assets and the separate accounts of spouses and third parties vary widely from one state to another, many do permit your joint or individual account to be garnished for a debt that’s not yours. The determining factors are the nature of the debt (consumer, child support, tax, etc.), the nature of your relationship with the debtor, and where you live.
In community property states, which include California, Nevada, Arizona, Idaho, New Mexico, Washington and Wisconsin, husbands and wives share equally in most income, debts and property acquired during the marriage. Since each spouse shares in most of the marital income, property and debts, that means a garnishment order issued against one spouse can usually be applied to the joint and separate bank, investment or other accounts of the other spouse.
In states that follow the law of “tenancy by the entireties," the law is different. In those states, your spouse’s creditors cannot garnish a joint marital account or your separate account unless the underlying judgement is against you as well. All of the rest of the states are governed by common law and separate property rules. In those states, the debt of one spouse is only the debt of that spouse, unless the borrowed money directly benefited both spouses.
Thus, today’s featured article provides a very loud wake-up call for those debtors who reside in states where joint and separate accounts can be reached to garnish a debt that is not yours, where you have a close relationship to the debtor. As this could impact the debtor’s spouse, children, significant other and business partners, it behooves all parties to familiarize themselves with the applicable law of the state in which they reside.