Exempt Property May Lose Character If Deposited Into a Joint Account

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Russell’s Americinn, LLC v. Eagle General Contractors, LLC, 772 N.W.2d 81 (Minn. App. 9/15/09) (Worke, J.).

Case Summary:

Exempt Property May Lose its Character if Deposited Into a Joint Account

The judgment creditor garnished the judgment debtor’s IRAs and a joint bank account that the debtor shared with his son. The debtor filed a claim of exemption. The debtor argued 1) the IRAs were exempt under Minn. Stat. § 550.37, subd. 24(a) because IRAs and Roth IRAs are specifically listed as exempt accounts; and 2) the bank account was exempt under the Minnesota Multiparty Accounts Act, Minn. Stat. §§ 524.6-201-214 (2009), because he jointly owned the account with his son and the account only served as a means to repay loans from his son. The creditor argued 1) the debtor’s IRAs were not exempt because they were not the result of employment earnings, but instead were funded by a rollover from an investment account and an inheritance; and 2) the debtor failed to provide documentation that he only deposited money into the account and never withdrew funds from the accounts. The district court denied both exemption claims on the basis that the debtor had failed to meet his burden of proof.

The court of appeals concluded that the debtor’s IRAs were exempt up to the statutory limit of $60,000, regardless of the source of the funds, because the subdivision that provides for the exemption does not require that the funds be derived from employment earnings. Although the heading of the subdivision is “employee benefits,” Minn. Stat. § 645.49 (2008) states, “[the] headnotes printed in boldface type before sections and subdivisions in editions of Minnesota Statutes are mere catchwords to indicate the contents of the section or subdivision and are not part of the statute.” The court also looked to the legislative history, and found that the heading “employee benefits” was not a part of the original bill.

However, the court held that joint bank account funds were not exempt. A joint account holder does not own funds contributed by another to a shared account unless there is evidence of contrary intent. Minn. Stat. § 524.6-202; Enright v. Lehmann, 735 N.W.2d 326, 335 (Minn. 2007). There was no evidence that the debtor’s son owned the funds. The debtor was the only party to contribute to the account. The court concluded that the district court did not err in denying the debtor’s claim of exemption in the joint account.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.