In Morgan Stanley & Co., Inc. v. Andrews, the Court of Special Appeals of Maryland addressed a non-debtor’s defense to a garnishment proceeding against funds in a bank account jointly owned with the judgment debtor, who was not his spouse. The Court determined that while there is a prima facie presumption of ownership by each named account owner, that presumption can be rebutted by clear and convincing evidence as to which portion of the account funds belong to which owner. Thus, in this case, the Court agreed that the trial court correctly determined that the funds in an account jointly held by a father and son were not subject to garnishment, where the father successfully proved that he was the sole contributor and owner of all of the funds.
A copy of the opinion is available here.
In this case, after obtaining a judgment against the judgment debtor (“Son”), Creditor sought to garnish funds held in an account jointly titled in both Son’s name and Father’s name. Father asserted his claim to the garnished funds under Maryland Rules 2-645(i) and 2-643(e), and after his claim was initially denied on the papers, following an appeal, the case was remanded to the trial court for an evidentiary hearing.
Thereafter, on remand, the trial court held an evidentiary hearing to determine Father’s claim to the funds in the joint bank account, and determined that Father had established that all of the funds in the joint account belonged solely to him, and that Son had not deposited any of his own funds into the account. Creditor then filed the present appeal.
On appeal, Creditor argued that funds in the joint account were per se subject to garnishment because the judgment debtor was a named owner, regardless of whether co-owners of the account were also judgment debtors. The appellate court disagreed, determining instead that, while there is a presumption that a bank deposit belongs to a named owner of the account, “a co-owner of a joint account can rebut the presumption of ownership by proving, by clear and convincing evidence, which portion of the account belongs to each co-owner.” Op. at 14.
Notably, the Court differentiated between legal title to a joint account and equitable title to the funds within the account. Op. at 11. The Court adopted the majority rule followed by at least 23 other states, which provides that a judgment creditor of one joint account holder may execute against the joint account only to the extent of the debtor’s equitable interest in the account. Op. at 11.
In determining the debtor’s equitable interest, the Court identified two primary factors: (1) control over the funds; and (2) original contribution of the funds. Op. at 13. Other relevant factors include whether a party’s social security number appears on the account, which party’s name appears on checks, which party signs checks, which party pays taxes on interest from the account, and which party possesses the passbook and other related documents. Op. at 13. The Court cautioned that the titling of the account, and the right to withdraw from the account, do not necessarily indicate equitable ownership. Op. at 18.
Consequently, the Court agreed with the trial court’s determination that Father was the sole owner of all funds in the account, observing that the most important factor was that it was undisputed that Father was the original contributing source of all the funds. Op. at 20-21.
Although the Court described how the prima facie presumption of ownership can be rebutted, it left unanswered what type of prima facie presumption applied. The Court observed that some jurisdictions use an “equal share” approach, imposing a rebuttable presumption that account holders own equal shares, while others use a “full share” approach, presuming that each co-owner beneficially owns the entire account. Op. at 13.
In addition, the Court noted that its opinion did not affect the existing restriction upon garnishment of property owned jointly by spouses. See Maryland Code, Courts and Judicial Proceedings § 11- 603(a) (“[A] garnishment against property held jointly by [spouses], in a bank, trust company, credit union, savings bank, or savings and loan association or any of their affiliates or subsidiaries is not valid unless both owners of the property are judgment debtors.”).