Are All Delaware Bank Accounts Exempt From Garnishment?
One of my clients who has recently moved to Florida from Delaware suggested he could best protect his cash from creditors by depositing the money in his Delaware bank account. He claimed that a Delaware statute prohibited a creditor from garnishing any money in a Delaware financial institution. I know nothing about Delaware law, but this seemed too good to be true so I decided to check it out on my own time. I found a Delaware statute that states that no creditor can garnish money deposited in a financial institution in the state.(10 Del.C. § 3502.) I found case law as recent as 2007 that stated, "Under Delaware law, bank deposits are exempt, and any attachment directed at a bank is prohibited." The cases explained that the legislature's intent behind the statute was not to protect debtors from their creditors, but instead, to protect Delaware's financial institutions from interruption of their normal business operations from creditor garnishments. I found no language in the statutes or cases that limited this protection to residents of Delaware, and if true, then a resident of any state could shield their money in a Delaware bank.
This seems too easy; maybe there is something I don't understand about Delaware laws. If any reader of this blog post is a Delaware attorney, or otherwise is educated about this aspect of Delaware law, I would appreciate confirmation or an explanation. To me. this is an example of how state specific asset protection law can be. Each state has its own rules. If Delaware law does protect all bank accounts from garnishment a Florida resident should still speak with a Delaware attorney to make sure that their money is secure from creditors in a Delaware bank.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
Just being protected from garnishment isn't really protection.
In a similar fashion, offshore accounts in some foreign jurisdictions are protected from garnishment as well. Meaning the assets cant be frozen or seized directly. But if a court claims personal jurisdiction over you, they can simply order *you* to move the assets to an account in a seizable jurisdiction or pay them to a creditor directly, garnishment or not, under penalty of contempt.
Walt is correct that turnover orders can be issued, and the debtor also must be concerned with the possibility of involuntary bankruptcy (where the creditor or creditors file against the debtor) because BK courts play hardball, and Federal Marshalls and legal problems in federal courts are usually much more dangerous than state court situations.
I called many banks in DE and all of them required a DE drivers license and address.
For Kendra: I don't have any connection to this bank, but it seems to be Delaware-only and it has a product called "Electric Orange" that lets you get it set up from afar: ING Bank, fsb
There may be other banks in Delaware whose "Know Your Customer" policies will allow for distant accountholders, I'm simply positing this one as a shortcut to an innovative outfit.
Here is an interesting article on this subject that I located through a Google search.
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Using Delaware Bank Accounts and Trusts to Shield Deposits, Trust Funds, and Trust Distributions from Creditor Claims
By Richard W. Nenno, Esq. Wilmington Trust Company, Wilmington, DE
Creditors of non-Delaware residents as well as Delaware residents may not reach assets of accounts in Delaware banks. The current statute provides as follows (10 Del. C. § 3502(b)):
Banks, trust companies, savings institutions and loan associations … shall not be subject to the operations of the attachment laws of this State.
This protection is not new. In fact, the earliest predecessor of the statute was enacted in 1871 (14 Del. Laws 90). Over the years, Delaware courts have read the protection broadly as follows:
• Sterling v. Tantum, 94 A. 176 (Del. Super. Ct. 1915)--Funds in trust department of corporation having banking powers are exempt from attachment even though trust department is distinct from banking business
• Provident Trust Co. v. Banks 9 A.2d 260 (Del. Ch. 1939)--Filing of creditor bill in equity court does not enable creditors to reach assets of self-settled trust at Delaware trust company
• Bank of Delaware v. Wilmington Housing Authority, 352 A.2d 420 (Del. Super. Ct. 1976)--Wages of employee of Delaware bank are not subject to garnishment
• Delaware Trust Co. v. Partial, 517 A.2d 259 (Del. Ch. 1986)--Request for temporary restraining order to enjoin withdrawal of funds from bank denied
However, the Delaware Supreme Court held in Garretson v. Garretson, 306 A.2d 737, 742 (Del. 1973), that “the seizure by sequestration of spendthrift trust income in the hands of a bank as Trustee at the suit of a wife seeking maintenance from a husband is not an attachment within the meaning of § 3502.” Nevertheless, in the nonmarital context, a Delaware or non-Delaware resident may obtain substantial protection from creditors by placing funds in a checking, savings, trust, or other account at a Delaware institution. Even in the marital context, an individual will be no worse off by so doing than he or she would have been by holding funds elsewhere and might be better off because, in Delaware Trust Co. v. Partial, 517 A.2d 259, 261 (Del. Ch. 1986), the Delaware Court of Chancery indicated that Garretson has limited application:
It has been held that Section 3502 does not directly exempt Delaware banks from the operation of our sequestration process. The statute authorizing sequestration, however,--and the Garretson case construing it--is limited to the seizure of property to compel appearance and thus has no application to the case at bar.
In addition, mandatory or discretionary distributions from a marital-deduction trust, a charitable-remainder trust, a revocable trust, an asset-protection trust, etc., Delaware or otherwise, into an account in a Delaware bank or trust company will insulate the funds from creditor claims.
Whereas the statute prohibits attachment of assets in a non-bankruptcy context, it will not apply upon the filing of a petition under the United States Bankruptcy Code unless the account fits within one of the limited exemptions or exclusions provided by the Bankruptcy Code.
For more information, in the Tax Management Portfolios, see Rosen and Rothschild, 810 T.M., Asset Protection Planning.
Document retrieved on Tue Oct 06 2009 12:57:50 GMT-0400 (Eastern Daylight Time)
Does anybody know if an existing Florida LLC can set up a bank account in Delaware?
Here is a very important link which should clear that up. If you open a Delaware LLC and corporate bank account in Delaware, you are protected. Here is some really good information. I'd still check with your attorney. I'm sure there are exemptions, but this link should clear up the matter: http://incplan.net/index.php/services/usa-bank-account.html