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Can Custodial accounts be garnished?

In most cases, yes.

Very few exemptions to wage garnishment exist, although laws can vary from state to state. Please refer to your own state’s law on this (or consult a legal professional).

What does ‘garnishment’ mean?
Garnishment is a way for creditors to take money from a person’s wages or bank account as a way of repaying debts owed to them. Creditors may only garnish accounts after obtaining a judgment. A judgment a decision in a lawsuit against a consumer about unpaid debt.

What types of income can’t be garnished?
Income that is considered “not subject to garnishment” and can’t be garnished at all has to be:

  1. Readily identifiable
  2. Submitted to a bank account via direct deposit
  3. Coming from an eligible source

Most income that can’t be garnished come from federal or state benefits. The Federal Trade Commission lists types of federal benefits that are exempt from garnishment.

Some of these include:

  • Social Security benefits
  • Supplemental Security Income (SSI)
  • Student assistance
  • Merchant seamen wages
  • Compensation for injury, death, or detention of employees of U.S. contractors outside the U.S.
  • Foreign service retirement and disability benefits
  • Veterans’ benefits
  • Civil service and federal retirement and disability benefits
  • Military annuities and survivors’ benefits
  • Railroad retirement benefits

Additionally, certain state benefits are not subject to garnishments, such as public assistance or unemployment payments from a state agency.

Payments from worker’s compensation or a public or private retirement plan are also not subject to garnishment. Your bank can provide you with an Affidavit about funds not subject to garnishment.

Unless money being deposited to a child’s Custodial Account comes from sources like these, the balance of the account will be subject to garnishment.

While you are the custodian, your name is on the account. Because your name is on the account, creditors or debt collectors can seek to garnish income that has been deposited there.

Parents have sometimes attempted to place funds into custodial accounts to avoid wage garnishment. This does not work.

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