bank accountFunds in joint bank accounts can generally be accessed by all account-holders — each of them can withdraw all of the money in the account regardless of who actually deposited the funds in the account.  This is often the reason for having a joint account.  However, this can create a huge problem for the account holders when one of them is subject to a garnishment or files a Bankruptcy case.  If the account is garnished because one of the account holders has a judgment against them, neither the bank nor the creditor have to determine the source of the funds prior to attaching them.  If one of the parties files a Bankruptcy case, the Trustee may lay claim to all or a portion of the funds as property of the Bankruptcy estate.  A joint account should rarely, if ever, be used when one of the parties is facing judgments or bankruptcy.

Georgia law provides that “[a] joint account belongs, during the lifetime of the parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent.” O.C.G.A. §7-1-812(a).  If a creditor or Bankruptcy Trustee of one account holder makes a claim to the funds in the account, the other account holder(s) will often have to come forward to show that the money, or a part of it, really belongs to them.  In a garnishment, the debtor account holder will have to complete the answer to the garnishment and state that the funds at issue belong to another party.

In a recent Bankruptcy case in the Northern District of Georgia, the Court addressed the “intent” clause in the statute. The non-debtor testified that both he and the Debtor would deposit money into the account, but the Debtor was the only one who ever withdrew money from the account. He also stated that the Debtor would use the money in the account for her personal expenses, and the account’s purpose “was to have a convenient place to deposit a reasonable sum of money for safekeeping and that…she could use it, or I could use it as we may need to.”  The Trustee alleged that the testimony above evidenced an intent of the non-debtor to transfer ownership of the funds to the Debtor.

Judge Drake ruled that the state court testimony was not sufficient to overcome, by clear and convincing evidence, the presumption that the funds belonged to the non-debtor account holder.

The Trustee maintained that [the non-debtor’s] testimony that only the Debtor ever withdrew funds from the account, and that the Debtor used the funds in the account for her personal expenses, showed that [the non-debtor] must have intended his deposits into the account as gifts.

While that testimony is certainly some evidence of intent to make a gift, the Court cannot conclude that it is clear and convincing proof of such intent. To begin with, the fact that only the Debtor ever withdrew funds from the account is immaterial because the “authority to withdraw funds from a joint account does not equate to ownership of the funds.” … What is more, [the non-debtor account holder] testified … that both he and the Debtor intended to make use of the account when they opened it. That he failed to withdraw funds in the relatively short time between the opening of the account in February and the initiation of the garnishment proceeding in August, on its own, is not clear and convincing evidence that he never intended to withdraw the funds he deposited…

[The non-debtor account holder] proffered at the hearing before this Court that he and the Debtor had an understanding that each spouse was to deposit funds into the account to cover that spouse’s withdrawals from the account. The Trustee did not call the Debtor as a witness or present any other evidence suggesting that there was no such arrangement between [the non-debtor] and the Debtor.

Based on the evidence submitted at the hearing, Judge Drake ruled that the Trustee did not overcome the presumption, by clear and convincing evidence, that the non-debtor account holder intended that the deposit of the funds constituted a gift or voluntary transfer to the Debtor.  Therefore, the account funds were not property of the Bankruptcy estate.

The case is In re Thornton, Ch. 7 Case No. 11-13222-whd (Bank. N.D. Ga. March 25, 2016).

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Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information,click here.