Funds 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. 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.
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 Chapter 7 Trustee claimed that the funds in a Debtor’s joint account were
property of the estate. However, the other account holder objected and
claimed that the funds were his, rather than the Debtor’s, as he had deposited
the money in the account. Prior to the filing of the Bankruptcy case, the
non-debtor testified under oath in a garnishment case 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.” Before the state court ruled on the matter, the Chapter 7
case was filed. 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 fund belonged to the non-debtor account holder.
In determining the intent of the parties to the
account, the Georgia statute “creates a presumption that a party funding a
joint account does not intend to make a gift of the funds of the account during
her life.” Caldwell v. Walraven, 268 Ga. 444, 448 (1997); accord Wallace
v. McFarland (In re McFarland), 619 F. App’x 962, 970 (11th Cir. 2015) (per
curiam). However, as the statute itself states, this presumption may be
overcome by clear and convincing evidence of a contrary intent. See
Caldwell, 268 Ga. at 448; Lamb v. Thalimer Enters., Inc., 193
Ga. App. 70, 71 (1989)…
The Trustee maintained that Sylvester’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
Sylvester 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.” In
re McFarland, 619 F. App’x at 970-71 (citing Parker v. Kennon,
242 Ga. App. 627, 629 (2000))… What is more, [the non-debtor account holder] testified
at the State Court hearing 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
Sylvester 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.
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.
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