In the ordinary course of life, it is not uncommon for a creditor to obtain a judgement against an individual who has a joint account with his or her spouse, or who shares an account or assets with a non-spouse such as a significant other, family member, or business partner.
If you are the other spouse or third party, you might think there’s no way a creditor can lawfully garnish your funds based on the debt of someone else. You may also think such an action would be unlawful everywhere, due to a sense of fundamental unfairness.
If so, you would be wrong. The rules for garnishing joint accounts, joint assets, and the separate accounts of spouses and third parties, vary widely from one state to another. Depending on the nature of the debt (consumer, child support, tax, etc.) and where you live, your joint or separate account may be subject to garnishment for a debt that’s not yours.
Community Property States
A community property state is a state that views property acquired during a marriage in a certain way that favors each spouse equally.
At the present time, these states include California, Nevada, Arizona, Idaho, New Mexico, Washington and Wisconsin. Married Alaskans can agree to have their assets treated as community property if they so choose, and the U.S. territory of Puerto Rico follows community property rules.
In a community property state, husband and wife share equally in most income, debts, and property acquired during the marriage. Put another way, both spouses share and/or own most property acquired during the marriage, regardless of whose name is on the title, bank account, pay check, or debt.
Since each spouse shares in most of the marital income, property and debts, this means a garnishment order issued against one spouse can be applied to the joint and separate bank, investment or other accounts of the other spouse.
The primary exception is money or assets acquired by one spouse by gift or inheritance, or where some exemption applies.
Community Property Rules for Separate Accounts Vary Between States
Most community property states allow a creditor to garnish a married couple’s joint accounts. Several, such as Texas, bar a creditor from garnishing the non-debtor spouse’s separate account as long as the debtor does not make deposits into or take withdraws from that account.
Tenants by the Entireties Also Vary Between States
Just like some states are community property states, others are so-called “tenancy by the entireties" states. In these states, your spouse’s creditors cannot garnish a joint marital account or your separate account unless the underlying judgement is against you as well.
Tenancy by the entirety, which typically applies only to marriages, means each spouse has complete rights to all marital property, versus the undivided half-interest recognized in community property states.
The limitation to married spouses is important in that joint accounts held by non-married persons might still be subject to garnishment of either account holder’s debts.
Some states also limit this to real estate ownership only, so be sure to check the particulars of your state.
States Governed by Common Law and Separate Property Rules
All of the rest of the states are governed by common law and separate property rules. In these states, the debt of one spouse is only the debt of that spouse, unless the money borrowed directly benefited both spouses.
As long each spouse keeps a separate bank account, a garnishment order against one spouse cannot be applied to the account of the other. However, even in these states, if the spouses take out a joint account, the creditor of one can reach it via a garnishment order.
Some states do place a limit on the amount that can be reached by a garnishment of joint accounts to one-half the funds in the account. Others require that the debt incurred by the one spouse be one that benefits both spouses, the family, and a jointly held property.
Protecting Funds in Joint Accounts from Garnishment by Raising Exemptions
Regardless of what state you live in, or what type of marital law applies, some accounts are exempt from garnishment. Generally, if federal or state law protects certain funds from garnishment, any account in which they are deposited or transferred cannot be garnished. The most common example is SSI benefits, which are protected from garnishment by federal law. Other federal benefits and some state benefits receive the same protection. Check your state for the particulars.
Joint Accounts with Third Parties or Non-Spouses
Sometimes you deposit funds into a joint account with a significant other to whom you are not married, or a family member or business associate. In that case, many states allow a creditor to garnish the joint account even if the other party does not owe the debt. State laws vary on when creditors can reach these joint accounts with garnishment, some allowing the creditor to only reach half of the funds, others allowing the creditor to reach the entire amount. Check carefully with local law or engage qualified creditor-debtor counsel to learn how your state works.
Nevada Statutory Law: https://www.leg.state.nv.us/nrs/NRS-021.html
Nevada Supreme Court Decision: Brooksby v. Nevada State Bank, 129 Nev. Adv. Op. 82 (Nov. 7, 2013) (creditor cannot garnish non-debtor’s funds held in joint account or any funds in joint account held 100% for others)
Federal Regulations: “Garnishment of Accounts Containing Federal Benefit Payments", OCC BULLETIN 2014-12 – http://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-12.html
Law Review: 31 CFR Part 212 – GARNISHMENT OF ACCOUNTS CONTAINING FEDERAL BENEFIT PAYMENTS – https://www.law.cornell.edu/cfr/text/31/part-212