Garnishment of Life Insurance Death Benefit Payable to Debtor

Our client is the beneficiary of a life insurance policy on her husband’s life. The husband owns the policy. The client has a large civil judgment. The husband died, and the wife filed a claim with the life insurance company. The insurance company delivered a check for the insurance proceeds to our client, and the client deposited the proceeds in her bank account. The bank put a hold on the proceeds. The wife’s creditor served the insurance company with a writ of garnishment.

A party served with a writ of garnishment (“garnishee”) must file an answer stating whether they owe the debtor any money or property. The insurance company owed the debtor wife insurance proceeds, but the company wrote a check and the check was deposited prior to service of the writ. The question is whether the insurance company should reply that it still indebted to the wife as insurance beneficiary after the wife deposited the insurance company check.

The Florida Supreme Court decided a case in 2008 that held that a garnishee who has paid the debtor by check recently prior to service of the writ is required to contact its bank to determine the status of the check. . If the check as been deposited in the debtor’s bank and has been presented to the garnishee’s bank for payment the garnishee’s answer shall be that the debt has been paid and the garnishee is not holding money subject to the writ. If the check has not been presented for payment, the garnishee should stop payment and hold the funds subject to further court order. The garnishee must act as soon as reasonably possible to contract its bank after the garnishee receives the writ. A garnishee who failed to comply with this rule may be held liable to pay the judgment to the extent of funds held for the debtor.

In this client’s case, our client could have prevented garnishment of the insurance death benefit if the husband had transferred policy ownership to an irrevocable life insurance trust that held the death benefits in trust for the surviving spouse with a spendthrift provision. The creation of the trust and assignment of the policy would not have been a fraudulent transfer by the husband because the husband was not liable to pay the judgment.