Garnishment Of Joint Bank Accounts In Indiana
March 11, 2013
If, following an Indiana mortgage foreclosure and sheriff’s sale, a deficiency judgment exists, plaintiffs/secured lenders have the option, in proceedings supplemental, to garnish certain property of the defendants/judgment debtors (such as a guarantor). Trustees of the Teamsters v. Brown, 2012 U.S. Dist. LEXIS 15426 (N.D. Ind. 2012) (.pdf) involved the attempted garnishment of a bank account held jointly by a judgment-debtor and an innocent spouse.
The targeted funds. The plaintiff in Brown owned a judgment against Mr. Brown. In proceedings supplemental, the plaintiff served interrogatories on two garnishee-defendant banks. Bank A responded that Mr. Brown and his wife had a joint account and that all contributions to the account were for income from the wife’s employer. Bank B responded that Mr. Brown and his wife had a joint account there as well. A portion of the balance in Bank B related to Mr. Brown’s Social Security benefits, income from his wife’s employer and a tax refund owed to Mr. Brown. The plaintiff filed a motion with the court requesting a turnover order of all funds in each bank. Mr. Brown asserted that Indiana law protected the funds received from Social Security, as well as the funds contributed to the joint account by his wife.
Basics. The Court in Brown noted that, under Indiana law, the plaintiff/judgment-creditor bore the burden of demonstrating that Mr. Brown, as the judgment-debtor, had property or income subject to execution. An interest in property subject to execution may include property that the judgment-debtor owns that is in the hands of a third-party, such as a bank account. But there are Indiana and federal statutes that exempt certain property a judgment-debtor owns from garnishment. Ind. Code § 28-9-3-4(d)(3)(B) provides that certain sources of income deposited into an account are exempt and that those sources of income include “Social Security, Supplemental Security Income, veterans benefits, and certain disability pension benefits, and that there may be other exemptions from garnishment under federal or state law.” See also 42 U.S.C. § 407(a). Mr. Brown’s Social Security benefits were exempt.
Joint account. The evidence established that the bank accounts were joint accounts with survivorship, not tenants in common. Ind. Code § 32-17-11-4 defines a joint account as “an account payable on request of one (1) or more of two (2) or more parties whether or not mention is made of any right of survivorship.” In Indiana, the ownership of funds in a joint account is a question of fact during the lifetime of the parties.
Tenants in common. The plaintiff in Brown asserted that the agreement with each bank indicated an intent to hold the funds jointly, not by their respective contributions, because the documents stated “Joint Account – With Survivorship (And Not As Tenants In Common).” In Indiana, tenants in common are presumed to own property in equal shares, although evidence may be submitted to prove the parties’ intent to the contrary for the purpose of determining how much property is owned by each tenant in common. On the other hand, individuals who deposit money into a joint account are entitled to the opposite presumption. The Court in Brown interpreted Ind. Code § 32-17-11-23 to mean “that the individual who made the contribution to the joint account retains ownership of the respective funds unless there is clear and convincing evidence of a contrary intent.”
Presumption. Since the agreements with the banks specifically stated that Mr. Brown and his wife did not hold the account as tenants in common, the Court could not assume that they held the money in equal shares. Rather, they held the money as joint tenants, and the plaintiff had the burden to show that Mr. Brown and his wife intended for mutual use of all funds contributed to the account. “The law is clear that the parties own the amount equal to their contributions absent clear and convincing evidence to the contrary.” The Court concluded that there was nothing in the agreements with the banks that manifested an intent contrary to the presumption described in Ind. Code § 32-17-11-23.
Withdrawal rights not dispositive. To overcome the presumption, the plaintiff pointed to the couple’s use of the funds, which use indicated their intent to share. Mr. Brown made withdrawals and signed checks from the accounts for his personal and business use. In Indiana, “the right to withdraw and the right of ownership, however, are separate and distinct rights.” While deposit agreements may give a joint tenant the right to withdraw funds, such agreement does not alter ownership. A joint account holder does not own the funds deposited by another account holder unless there is proof that it was given by gift, contract or irrevocable trust. As such, Mr. Brown’s use of the funds alone was not clear and convincing evidence that his spouse intended to relinquish ownership of the funds in their entirety.
In the end, the Court limited the plaintiff’s garnishment to a tax refund check that Mr. Brown deposited. No other funds in either bank were subject to garnishment. A key point is that, under Indiana law, the contributions of an innocent spouse into a deposit account held jointly with a judgment debtor should be shielded from collection.