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Increase in 401(k) contribution

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What is the name of your state? Florida

I was facing a lawsuit filed in 2016 and lost it in 2020. have no assets to pay to the creditor as I have been doing a single job and I am head-of-family, my wife and children depends on me for financial help. I collect each pay check from my employer and cash it somewhere and spend it for our living. The creditor never came after me until now, to collect judgment money, after knowing my financil status and the way I operate. However, they can come at any time (but they will not get any money from me as I have nothing to pay).



I was contributing around 8% of my income to my 401(k) until the middle of the year 2019. However, I reduced it to 5% from the middle of 2019 until now as I needed more take home money. Now, if I increase that contribution back to its old level of 8%, will it be counted fraudulent transfer Chapter 726 or fraudulent conversion Chapter 222 if the judgment creditor come after me any time after that increase?
 


adjusterjack

Senior Member
726 Doesn't apply because (14) "transfer" is defined as "disposing of or parting with an asset or an interest in an asset." You aren't doing any of that because it's still your money.

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0726/Sections/0726.102.html

If you are concerned about 222.29 and 222.30 I don't think they apply either since your 401(k) is exempt and your wages may already exempt as "head of the family."

I wrote "may" because you say you are head of the family but you need to make sure you actually qualify as "head of the family" according to the statute 77.041.

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0000-0099/0077/Sections/0077.041.html

Study that carefully and be prepared to use it if your boss suddenly tells you that a wage garnishment has come in or you get the notice from the court.
 
Thank you! Yes, I provide more than half of support to my wife. She has no job and she depends on me financially. Is it enough for me to claim I am head-of-family? I am thinking that I am but your feedback will certainly help me.

Also I read at: https://www.floridabar.org/public/consumer/tip006/ “Wages in a bank account that belong to a head of family retain their protection from being seized for six months, even if the wages are mixed with money from other sources.”

If I put my paycheck (nothing else) in my bank account (as soon as I receive the check from employer) and transfer that amount quickly (less than 6 months time) from my bank account to a tenants by entirety joint account with my wife, will it be counted as fraudulent transfer or fraudulent conversion? Alternately, if I put my paycheck (nothing else) directly and quickly (less than 6 months time) into a tenants by entirety joint account with my wife then will it be counted as fraudulent transfer or fraudulent conversion?

I read that the money in tenants by entirety joint account with my wife is protected from creditors. I am not sure if the transfer of money in the above scenarios, into the tenants by entirety account, becomes fraudulent transfer or fraudulent conversion.
 
Hypothetically, if I am not head-of-family then:

will the proposed increment in my 401(k) contribution to the same old level of 8% will be considered as fraudulent transfer or fraudulent conversion? If I am going beyond 8% then the creditors may successfully argue that I did fraudulent transfer or fraudulent conversion but I am not doing that. I missed this part of the question earlier and fell in love with other things. Please help with your feedback.
 

adjusterjack

Senior Member
Also I read at: https://www.floridabar.org/public/consumer/tip006/ “Wages in a bank account that belong to a head of family retain their protection from being seized for six months, even if the wages are mixed with money from other sources.”
True. But I caution you not to pay much attention to web pages that purport to provide legal information but don't cited sources, even lawyers' pages. The statute that says that is 222.11(3):

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0200-0299/0222/Sections/0222.11.html


If I put my paycheck (nothing else) in my bank account (as soon as I receive the check from employer) and transfer that amount quickly (less than 6 months time) from my bank account to a tenants by entirety joint account with my wife, will it be counted as fraudulent transfer or fraudulent conversion? Alternately, if I put my paycheck (nothing else) directly and quickly (less than 6 months time) into a tenants by entirety joint account with my wife then will it be counted as fraudulent transfer or fraudulent conversion?

I read that the money in tenants by entirety joint account with my wife is protected from creditors. I am not sure if the transfer of money in the above scenarios, into the tenants by entirety account, becomes fraudulent transfer or fraudulent conversion.
Seems to me that you are trying to scratch your left ear with your right elbow. Why not just deposit your paycheck right into your joint account. The account is protected and you don't have to be concerned about the 6 month thing.

655.79(1) -in part- "Any deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing. "

http://www.leg.state.fl.us/statutes/index.cfm?mode=View Statutes&SubMenu=1&App_mode=Display_Statute&Search_String=655.79&URL=0600-0699/0655/Sections/0655.79.html

Going from one account to another seems to exhibit an intent to shield the money from creditors when doing so isn't really necessary. I can't say for sure whether that would give a creditor an "in" but there is good reason for that old saying "an ounce of prevention is worth a pound of cure.

will the proposed increment in my 401(k) contribution to the same old level of 8% will be considered as fraudulent transfer or fraudulent conversion? If I am going beyond 8% then the creditors may successfully argue that I did fraudulent transfer or fraudulent conversion but I am not doing that.
I covered that. By statutory definition t's not a "transfer." It's still your money.

Unfortunately, if you don't qualify for head of the family exemption, the garnishment comes out of your check before it's even handed to you and before anything goes into the 401(k).

By deposing the check into the joint account you are preventing that account from being levied but you aren't preventing the wage garnishment.
 

Taxing Matters

Overtaxed Member
Seems to me that you are trying to scratch your left ear with your right elbow. Why not just deposit your paycheck right into your joint account. The account is protected and you don't have to be concerned about the 6 month thing.
That transfer would be a fraudulent conveyance to the extent the wages are not exempt from attachment, however.
 
Thanks!!!

I incorrectly stated fraudulent conversion Chapter 222 and I am sorry. The correct citation is 222.30 Fraudulent asset conversions: http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0200-0299/0222/Sections/0222.30.html Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor’s claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor.

If I am not head of family and increase my 401(k) then it is treated as fraudulent conversion based on the above definition. Is this correct (I think so)? If correct:


Now, increasing the 401(k) contribution to the same old level, then whether it will also be treated as fraudulent conversion. My argument is that: I temporarily reduced my contribution to 5% (from the middle of 2019 until now) and now I am going back to the earlier level of 8%. Will this also be treated as fraudulent conversion?
 

adjusterjack

Senior Member
If I am not head of family and increase my 401(k) then it is treated as fraudulent conversion based on the above definition. Is this correct (I think so)?
I think not. You may have missed the point that I made earlier. If you don't qualify for the head of the family exemption your wages are subject to garnishment. A creditor can garnish 25% of your disposable income or the amount by which your disposable income exceeds 30 times the minimum wage whichever is less (222.11). Disposable income is net after tax and FICA withholding.

Example: You get a weekly paycheck of $1000. Tax and FICA withholding is $200. Your 8% contribution to the 401(k) is not 8% of $800, it's 8% of whatever is left after the garnishment is taken out and sent to the creditor. 25% of $800 is $200. 30 times minimum wage $8.65 = $259.50. $800 minus $259.50 = $540.50. If I'm getting this right (TM will correct me if I'm not) the creditor gets the lesser of the two or $200 per paycheck leaving you with $600 that you can do whatever you want with. Sending 8% or $48 per paycheck to your 401(k) is neither a transfer nor a conversion. Now you are left with a check for $552 that you are free to deposit in your joint checking account (tenants by entirety) (just like the majority of married Americans do) where it is exempt from attachment.

Just don't put it in your individual account first because a smart creditor can time a bank levy on the day of deposit before you have the chance to move it. In fact, I suggest you close your individual account and start a track record of regular deposits into the joint account or just keep cashing your paycheck and pay your bills and normal living expenses with money orders and cash. That's not a fraudulent conveyance or conversion. You're just honestly using up your money before the creditor can get to it and there isn't much he can do about it since you aren't hiding what you are doing.
 

Taxing Matters

Overtaxed Member
I think not.
You are overlooking the situation that gives rise to this issue. The problem is not, as you address in wage garnishment example, putting wages into the TBE account AFTER wage garnishment has taken a chunk out of the paycheck. What the OP is likely concerned about is all the wages that he transfers to the account BEFORE any wage garnishment ever starts. And at least a portion of those wages — the part that a wage garnishment could have reached if one had been in effect at the time — might indeed be a fraudulent conveyance that the creditor could get reversed and attach.

Your 8% contribution to the 401(k) is not 8% of $800, it's 8% of whatever is left after the garnishment is taken out and sent to the creditor.
Are you sure of that? The contribution may be 8% of gross salary, after all, rather than disposable income.

30 times minimum wage $8.65 = $259.50.
Florida adopts the same computation for the exemption for wage garnishment that federal law does — and thus it is the federal minimum wage of $7.25/hour (as of the date of this post) that is used, not Florida's minimum wage of $8.65/hour.

The U.S. Department of Labor has a great summary of how the wage rule works in its Fact Sheet #30:

Therefore, if the pay period is weekly and disposable earnings are $217.50 ($7.25 × 30) or less, there can be no garnishment. If disposable earnings are more than $217.50 but less than $290 ($7.25 × 40), the amount above$217.50 can be garnished. If disposable earnings are $290 or more, a maximum of 25% can be garnished.

In your example of a paycheck of $1,000/week with $200 of tax deductions (or other deductions required by law), the disposable earnings are $800 for the week. That exceeds $290 so the garnishment limit is 25% of the $800 of disposable income. That would mean that the wage garnishment amount would be $200.


Just don't put it in your individual account first because a smart creditor can time a bank levy on the day of deposit before you have the chance to move it.
Exempt wages that were deposited in that account may still retain their exempt status in this account. The OP would just have to prove what amount was exempt.
 
Appreciated!!

Let me focus on one thing:

Assume that, now, I increase the 401(k) contribution to the same old level (please do not focus on my head-of-family status: it may be true or not, but the court has not decided this). Whether this increase will also be treated as fraudulent conversion? My argument is that: I temporarily reduced my contribution to 5% (from the middle of 2019 until now) and now I am going back to the earlier level of 8% therefore I did not do any fraudulent conversion. Will this save me from fraudulent conversion claims of the creditor?
 
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adjusterjack

Senior Member
Will this save me from fraudulent conversion claims of the creditor?
Given the comments by TM, I have to admit that I can't say for sure. Your intent is, obviously, to shield money from the creditor and the intent may be all that is needed for the creditor to penetrate the machination.

One thing I just remembered is that you wrote that you

have no assets to pay to the creditor
Yes, you do. You are willing and able to contribute 5% or 8% of your income to your 401(k). You can pay something, you just don't want to pay. Instead of trying to hide money why don't you offer the 5% or 8% to the creditor so you can pay off the debt in exchange for the creditor backing off any unpleasant and costly litigation which may result in the creditor getting a lot more than that.
 
Appreciated!

My intent is not to shield money but to prepare for my retirement life, at which time I have no money to survive except this 401(k) savings. My intent therefore it is not to "hinder, delay, or defraud the creditor".

5% is the minimum I have to contribute from my side in that employer sponsored mandatory 401(k) plan (I just rounded the contribution amounts to 5% and 8% in all these discussions although they are not exactly 5% or 8%: my goal is just to show that they are different).
 

adjusterjack

Senior Member
If you haven't paid anything on it for a year you owe $10,400 maybe a bit more depending on how the interest is compounded. If you take 8% of your pay ($160) and apply it to the debt it gets paid off in 6 years and then you can go back to contributing to your 401(k) without that debt hanging over your head that just gets worse and worse every year. If you can make a payment deal with the creditor maybe they'll waive the interest and you get it paid off in about 5 years and 4 months.

Florida judgments are good for 20 years. At the end of 10 years you'll owe $15,395. At the end of 20 years you'll owe about $22,000. There's gotta be a lot of stress having a creditor hound you for 20 years. Not to mention if you ever need or want credit for something.

Have you considered bankruptcy?
 

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