Asset Protection and Wage Garnishment

One question I encounter quite often is what happens to my earnings (i.e. wages) if a judgment is entered against me? It’s a great question, because even if the bulk of your assets are protected, income can still be intercepted . . . in some circumstances. I want to address Texas and Florida asset protection laws as they pertain to garnishment of wages, because I have a lot of clients in those two states.

Texas and Florida

A writ of garnishment is a legal remedy that courts (outside of Texas) grant to creditors allowing them to collect a certain portion of a debtor’s wages or other income in an effort to satisfy outstanding judgments. For example, if your wages are garnished, then your employer would actually be ordered by the court to convey a portion of your paycheck directly to your creditors. In short, garnishment can be a harsh remedy, and it can have devastating consequences for people who rely on their income to meet daily needs.

Texas law does not have a mechanism for garnishment. In short, creditors have no way to garnish or otherwise intercept wages or other types of income from debtors located in Texas.  It is possible that a creditor could attempt to intercept a federal tax refund, but that is a long shot in most circumstances.

Florida Asset Protection

Unlike Texas, Florida does allow courts to issue writs of  garnishment. This means that debtors (i.e. individuals with judgments against them) in Florida need to plan for the possibility that some of their income may be intercepted. Despite that possibility, Florida asset protection law does make one notable exemption to a creditor’s right to garnish wages. This exception is called the head of household exemption.

If you are the head of a household in Florida, then your wages are “off limits” and cannot be garnished.  In this context the term “head of household” is more of a family definition. In other words, it doesn’t relate to where one lives or with whom but, rather, refers to an individuas support obligations. One can be the head of a household so long as she or he has a legal or moral support obligation for another person such as child, spouse, or parent. The supported person does not necessarily need to live in the same house or reside with the head of household (e.g. many parents have primary financial support obligations for children even though they do not have primary custody of the children).

Federal Garnishment Limitations

In addition to Florida’s state laws that limit garnishment of wages, there are many federal limitations on the amount of wages that can be garnished. Federal law limits garnishment to the lesser of (i) 25% of an employees disposable earnings or (ii) the amount by which disposable earnings are greater than 30 times the national minimum wage. Disposable earnings are basically equal to take-home pay. So, if you’re a high income earner, garnishment can have teeth.

To some extent, asset protection planning can help with the issue of garnishment, especially the use of offshore trusts. But truthfully, the best plan of attack is to set up your business so that you can control your wages. That way you can lessen the severity and impact of wage garnishment on your life.