In a decision that will likely resonate with anyone who's ever had a joint bank account, or with creditors who have had to deal with them, the New Jersey Appellate Division recently confirmed that a judgment creditor of one spouse cannot successfully levy upon a joint bank account of a married couple unless the judgment creditor demonstrates that the funds in the joint account are the individual property of the judgment debtor.

In Banc of America Leasing and Capital v. Fletcher-Thompson, a judgment debtor maintained a joint account with his wife, who was not a defendant. Banc of America Leasing and Capital obtained a default judgment in the State of Michigan against the husband, another individual, and a corporation. Banc of America Leasing domesticated and registered its Michigan judgment in New Jersey and obtained a writ of execution for a bank levy by the sheriff, which was served on a bank. The bank froze funds in the couple's joint account.

Following Banc of America Leasing's first of two motions for turnover of the funds, the couple entered into a consent order in which the husband agreed to provide replacement funds that were his own property in lieu of the funds levied from the couple's joint account. Neither the husband nor the wife signed the consent order; rather, defense counsel signed on their behalf.

The husband subsequently defaulted on the consent order. The trial court then granted Banc of America Leasing's second motion for a turnover of the levied funds in the joint account to partially satisfy the judgment.

The couple then sought to vacate the turnover order. She filed a certification with supporting documents alleging that the funds in the joint account were derived from her earnings, a pension, and reimbursement of funds out of the husband's business and, therefore, were solely hers and exempt from levy. The trial court denied the motion to vacate, but made no findings regarding which spouse owned the funds or whether they were exempt from levy.

After the trial court denied the motion to vacate the turnover order, the couple appealed.

The Appellate Division reversed, holding that Banc of America Leasing failed to meet its burden of proof that the funds in the joint account were property of the judgment debtor husband.

The Appellate Division made clear that “when seeking a turnover from a joint account, the judgment creditor has the burden 'to prove that the moneys thus deposited are the individual property of the judgment debtor, and therefore applicable to the satisfaction of the judgment.'”  Slip Op. at 4 (quoting Esposito v. Palovick, 29 N.J. Super. 3, 10-11 (App. Div. 1953)). The Appellate Division held that the trial court erred by failing to determine whether the funds levied on belonged to the judgment debtor.

The Appellate Division also rejected Banc of America Leasing's argument that the husband's breach of the consent order subjected the funds to levy, holding that the consent order that the wife did not sign did not constitute a waiver of the wife's right to dispute the levy. Accordingly, the court remanded the matter for further proceedings regarding the ownership of the funds in the joint account and their possible exemption from levy.

This decision provides clear guidance both for those seeking to enforce judgments in New Jersey and for non-debtor parties to bank accounts held jointly with judgment debtors. The decision also reaffirms the Appellate Division's longstanding precedent imposing upon a judgment creditor seeking to levy upon the funds held in a joint bank account the burden of demonstrating that the funds are the individual property of the judgment debtor. In other words, judgment creditors must understand and know that they must meet that burden, i.e., that the funds in the joint account must be traceable to the judgment debtor's income, earnings or assets to successfully levy upon a joint account. Failure to meet that burden will preclude a levy on the joint account.

This opinion is well reasoned and brings clarity to an area of collection practice that has bedeviled practitioners, as the facts of this case demonstrate. Judgment creditors can only levy on the assets of the judgment debtor. Thus, the judgment creditor can only attach assets in a joint account if the judgment creditor can demonstrate they belong to the judgment debtor. This decision makes clear who has the burden of proof.

Buechler is a partner in the Bankruptcy, Financial Reorganization & Creditors' Rights Department of Lowenstein Sandler LLP in Roseland.