Banks: How to Garnish a Married Couple
Posted by: Kara Boyle
Bob Gaumont co-authored this post.
The Maryland Court of Special Appeals recently decided an issue of first impression in Maryland -- that is, whether funds in an existing joint bank account can be garnished where one of the account holders is a non-debtor. O’Brien v. Bank of America, -- A.3d ----, 2013 WL 4788294 (Sept. 9, 2013). The O’Brien Court, relying on the legislative history of the applicable statute, § 11-603(c) of the Courts and Judicial Proceedings Article of the Maryland Code (hereafter “11-603”) and looking to related statutes and case law in other jurisdictions, found that such accounts can be garnished, even where one of the account holders is a non-debtor. Thus, Bank of America could garnish the account held by the O’Briens, a married couple, even though Mrs. O’Brien was the sole debtor. Such joint bank accounts are thus distinguishable from trust accounts, which, in Maryland National Bank v. Pearce, 329 Md. 602 (1993), were found to be not subject to garnishment unless both holders are the debtors. Note, however, that garnishment of a joint account is only valid if the account was in existence before the court entered a judgment regarding the garnishment. This differs from secured transactions involving after-acquired property. See Md. Code, Com. Law § 9-204(a).
The Court reviewed, in particular, the General Assembly’s amendments to 11-603(c) in 1991, which did not include the addition of a proposed “safe harbor” for accounts shared by spouses. On account of countless issues regarding such a safe harbor, including financial institutions’ concerns that they, at the time of garnishment, might lack knowledge regarding the marital status of the account holders, the General Assembly decided not to include the exception and instead permitted the financial institutions to maintain the assets in the bank account as opposed to placing them in court, thereby provided a “thoughtful solution to the institutions’ concerns.” The U.S. District Court for the District of Maryland has, however, considered the issue of adequate notice to judgment debtors. See Reigh v. Schleigh, 595 F. Supp. 1535 (D. Md. 1984), rev’d, 784 F.2d 1191 (4th Cir. 1986). Here, Bank of America did not provide post-judgment deprivation notification by the means of personal service or by publication, but the O’Briens had actual notice of the procedure and logistics regarding Bank of America’s compliance with a writ of garnishment pursuant to their Deposit Agreement with Bank of America.
Moreover, notice and an opportunity for a hearing, the Court explained, should be provided after attachment has occurred. Notice post-attachment, rather than pre-attachment, reduces the opportunity for spouses, family members, and/or significant others to engage in any type of conveyance intended to defraud the debtor’s creditors. Such attempts are common in family law cases, notably those involving alimony and child support issues.
In sum, the Court found that the trial court provided the O’Briens with a reasonable opportunity to be heard, and 11-603 did not violate the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution, Article 3, Section 43 of the Maryland Constitution, Article 19 of the Maryland Declaration of Rights, or the Expedited Funds Availability Act.
For the full opinion, click here.
The Maryland Court of Special Appeals recently decided an issue of first impression in Maryland -- that is, whether funds in an existing joint bank account can be garnished where one of the account holders is a non-debtor. O’Brien v. Bank of America, -- A.3d ----, 2013 WL 4788294 (Sept. 9, 2013). The O’Brien Court, relying on the legislative history of the applicable statute, § 11-603(c) of the Courts and Judicial Proceedings Article of the Maryland Code (hereafter “11-603”) and looking to related statutes and case law in other jurisdictions, found that such accounts can be garnished, even where one of the account holders is a non-debtor. Thus, Bank of America could garnish the account held by the O’Briens, a married couple, even though Mrs. O’Brien was the sole debtor. Such joint bank accounts are thus distinguishable from trust accounts, which, in Maryland National Bank v. Pearce, 329 Md. 602 (1993), were found to be not subject to garnishment unless both holders are the debtors. Note, however, that garnishment of a joint account is only valid if the account was in existence before the court entered a judgment regarding the garnishment. This differs from secured transactions involving after-acquired property. See Md. Code, Com. Law § 9-204(a).
The Court reviewed, in particular, the General Assembly’s amendments to 11-603(c) in 1991, which did not include the addition of a proposed “safe harbor” for accounts shared by spouses. On account of countless issues regarding such a safe harbor, including financial institutions’ concerns that they, at the time of garnishment, might lack knowledge regarding the marital status of the account holders, the General Assembly decided not to include the exception and instead permitted the financial institutions to maintain the assets in the bank account as opposed to placing them in court, thereby provided a “thoughtful solution to the institutions’ concerns.” The U.S. District Court for the District of Maryland has, however, considered the issue of adequate notice to judgment debtors. See Reigh v. Schleigh, 595 F. Supp. 1535 (D. Md. 1984), rev’d, 784 F.2d 1191 (4th Cir. 1986). Here, Bank of America did not provide post-judgment deprivation notification by the means of personal service or by publication, but the O’Briens had actual notice of the procedure and logistics regarding Bank of America’s compliance with a writ of garnishment pursuant to their Deposit Agreement with Bank of America.
Moreover, notice and an opportunity for a hearing, the Court explained, should be provided after attachment has occurred. Notice post-attachment, rather than pre-attachment, reduces the opportunity for spouses, family members, and/or significant others to engage in any type of conveyance intended to defraud the debtor’s creditors. Such attempts are common in family law cases, notably those involving alimony and child support issues.
In sum, the Court found that the trial court provided the O’Briens with a reasonable opportunity to be heard, and 11-603 did not violate the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution, Article 3, Section 43 of the Maryland Constitution, Article 19 of the Maryland Declaration of Rights, or the Expedited Funds Availability Act.
For the full opinion, click here.
Labels: Bank of America, banking litigation, debtor, financial services litigation, garnishment, joint bank account, Maryland
