In most cases, stocks and brokerage accounts can be garnished by a creditor with a money judgment. However, sometimes a brokerage account may be exempt from garnishment due to federal or state law.
Brokerage Garnishment Procedure
To garnish a judgment debtor’s stocks or brokerage account, a creditor first files a motion for a writ of garnishment directed towards the brokerage, pursuant to Chapter 77 of the Florida Statutes.
Once the writ of garnishment is issued, the creditor must then serve the writ onto the brokerage. After service, the brokerage is required by law to freeze any accounts under the name of the judgment debtor. This includes non-retirement accounts, retirement accounts, individual accounts, and joint accounts. Anything with the judgment debtor’s name on it.
The creditor then must send a statutorily required Notice to Defendant of Right Against Garnishment of Wages, Money, and Other Property. The debtor can file a Claim of Exemption in response if applicable.
After the debtor files a Claim of Exemption, the creditor can either drop the garnishment or deny the exemption. If denied, the Court will set a hearing on the exemption to determine whether the accounts are exempt from garnishment.
Once the Court resolves any dispute over the applicable exemptions, the Court will either dissolve the garnishment over any exempt funds or enter a Final Judgment of Garnishment. The Final Judgment of Garnishment will direct the brokerage account to turn over the frozen funds to the judgment creditor, up to the amount of the debt.
Prejudgment Garnishments
In Florida, a judgment creditor can in some circ*mstances obtain a garnishment against a brokerage account before the entry of a final judgment. However, to do so the creditor must post a bond of double the amount of the debt. The bond is designed to cover the costs, legal expenses, and damages that a defendant may incur should the plaintiff not prevail on the lawsuit.
As a practical matter, the bond requirement means that there is very little risk to a prejudgment garnishment. Very few creditors are willing to post such a bond.
Retirement Account Exemptions
Some retirement accounts are exempt from brokerage account garnishments under federal or state law.
ERISA accounts (Employee Retirement Income Security Act) are exempt from attachment under federal law. Most employer-sponsored plans, including 401(k) plans, are ERISA plans. Therefore, brokerage accounts set up under a 401(k) plan are exempt from garnishment.
In addition, some states exempt the attachment of other, non-ERISA retirement accounts. The exemption of retirement accounts in Florida is governed by section 222.21 of the Florida Statutes. Under this law, for example, IRA accounts, including inherited IRAs, are exempt from garnishment.
Self-directed IRA accounts can also be exempt from garnishment in Florida, so long as the account complies with the requirements outlined by section 222.21.
Tenancy by the Entireties Accounts
In Florida, married couples can own a non-retirement brokerage account jointly as tenants by the entireties. An account owned as tenants by the entirety is fully exempt from a judgment against just one spouse. However, any transfers made into an entireties account after the facts giving rise to the debt occurred can still be subject to fraudulent conveyance analysis.
Creating a tenancy by entireties brokerage account is not always simple. Some brokerages offer a special form to open an account as tenants by entireties, but only provide the form upon request. Other brokerages expressly state in their account agreements that tenancy by entireties ownership is not offered. In some circ*mstances, particularly with so-called “online brokerage accounts,” the accounts are located in another state which may not offer entireties ownership.
About the Author
Gideon Alper is an attorney who specializes in asset protection planning. He graduated with honors from Emory University Law School and has been practicing law for almost 15 years.
Gideon and the Alper Law firm have advised thousands of clients about how to protect their assets from creditors.
