Kentucky Garnishment of Jointly Owned Bank Accounts

It often happens that a creditor will garnish a debtor’s bank account, but there are more individuals named as account owners than just the one debtor. People have a multitude of reasons for jointly owned bank accounts, and they may never have thought about the possibility their individual deposits to an account might be subject to the debts of a another named account co-owner.

KRS 391.310(1) provides in part as follows:

“A joint account belongs, during the lifetime of all 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.”

A party’s “net contribution” to the account is defined by KRS 391.300(6) as the sum of all deposits thereto made by or for him, less all withdrawals made by or for him which have not been paid to or applied to the use of any other party, plus a pro rata share of any interest or dividends included in the current balance. These statutory provisions are “relevant only to controversies between these persons and their creditors and other successors,” KRS 391.305. Each of an account’s co-owners may be authorized full access and right to withdraw all of the funds in an account, even if that is more than their respective individual contribution of fund into the account, but in Kentucky the mere right to withdraw all the funds from an account does not establish ‘ownership’ of all the funds.

For example, a joint account is established for a child’s education with the intent that the child is the owner of all the funds in the account even though many contributions into the account are made by others. If contributions to the fund are intended as gifts to the child,  “clear and convincing” documentation should be created to establish that intent to safeguard the account funds from the other’s creditors, KRS 391.310(1), supra.

Ownership of joint bank accounts is presumed by statute to depend upon who contributed the funds to the account, subject to proof of a different intention. But, with bank account judicial garnishments, Kentucky courts have held that a party to a joint account is initially presumed to own the entire joint account for procedural purposes. The debtor or other account co-owners must claim and prove their respective contributions to the account to overcome that presumption, or prove an intention that the non-contributor has a greater ownership interest than their relative contributions would indicate. See Brown v Commonwealth of Kentucky, 40 S.W.3d 873 (Ky. App. 1999)

Brown, supra, stated in passing the best procedural practice would be for the non-debtor joint owner of the account to intervene as an interested party pursuant to Civil Rule 24.01 and assert his or her ownership rights directly.