PROTECT YOUR EXEMPT ASSET- HEAD OF FAMILY EARNINGS…DO NOT COMMINGLE WITH OTHER ASSETS.
In Hancock Whitney Bank v. John J. Adams, et. al, the bank obtained a judgement against Mrs. Adams and her former husband of approximately $45,000. The bank filed a writ of garnishment against Mrs. Adams in March 2019. At that time Mrs. Adams stated that she had a savings account with $230.41 and a checking account with $5,480.75. She claimed exemptions for head of family earnings (“Earnings Exemption”), unemployment compensation, retirement benefits and an IRS refund.
Florida Statutes Chapter 222 provides many exemptions from creditor claims, one of which is the Earnings Exemption. While the commingling of earnings with other funds does not by itself defeat the ability of a head of family to trace earnings, a recent case points out what happens when you commingle such an account with other assets and cannot trace such earnings.
Mrs. Adams had not received child support for 3 years and told the judge the funds in her savings and checking account were made up of an unsubsidized federal loan of $2,600 in February 2019, an IRA check for $2,910.44 in March, 2019, and an IRS refund of $5,555 in March, 2019. As any math wizard can see, those funds are not what she said was in her account when she claimed the exemptions.
The bank argued she had failed to meet her burden of proving her exemptions and her evidence showed she had commingled her exempt funds with her nonexempt funds and there was no tracing of funds to determine which funds, if any, were exempt.
Interestingly, the lower court judge determined that the Earnings Exemption was valid (not really explaining WHY other exemptions were or were not valid) and that he “knew” “…in equity and fairness, Ms. Adams is not in a position to–she just doesn’t have that kind of income anymore. She’s been struggling without receiving any child support.”
The appellate court noted that the lower court found that Mrs. Adams was not entitled to the claimed exemptions of unemployment compensation, retirement benefits and IRS refund.
The appellate court found that Mrs. Adams was not yet receiving unemployment benefits, the IRS refund is not exempt under Florida law and the record contained no information about the IRA or what, if any portion, of the total amount was attributable to the IRA. Further, she could not trace and identify the commingled funds in the checking account as Exempt Earnings and found that Chapter 222 does not provide for an “equity and fairness” exemption.
ADVICE: To take advantage of the head of Earnings Exemption, set up a specific wages account into which the paychecks are deposited. Do not commingle and, if, for any reason, monies in the account are commingled be sure the Exempt Earnings can be traced.
WORD OF THE WEEK: Writ of Garnishment is an order from the court ordering a specific action. The writ or order is directed to the third party holder of the debtor’s assets to “garnish” or deduct payments directly from a debtor’s wage or bank account in satisfaction of the debt.
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