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Pinnacol Assurance v. Laughlin.

2023 COA 9. No. 21CA1678. Garnishments—Exemptions—Social Security Benefits—Child Support Payments—Custodial Accounts—Commingled Funds.

January 26, 2023

Wilson began receiving temporary workers’ compensation benefits from Pinnacol Assurance (Pinnacol) in 2015. Years later, the Social Security Administration (SSA) determined that Wilson was entitled to back payments of Social Security disability benefits from July 2016 onward, and he received payments for $8,585.25 in December 2019 and $48,308.75 in January 2020. Because the back payments covered a period during which Wilson had also received benefits from Pinnacol, an administrative law judge (ALJ) later determined that Wilson owed Pinnacol $22,938.89 as an overpayment. The district court subsequently converted the ALJ’s order into a judgment. Wilson failed to pay on the judgment, so Pinnacol initiated garnishment proceedings. Wilson filed a claim of exemption, asserting that much of the money being withheld from his bank accounts was SSA benefits or court-ordered child support payments. During the hearing, Wilson’s mother, Laughlin, testified that she was Wilson’s representative payee, that she handled the distribution of his SSA payments, and that Wilson had a savings account, a checking account, and a third account that was created just for the child support money. She also disclosed that she had transferred thousands of dollars from her own checking account to Wilson’s checking account after the ALJ’s order. The court found that Wilson’s SSA payments had been commingled with other, nonexempt funds, so much of the money that was garnished was not reasonably traceable as exempt property. Ultimately, the court entered a written order directing that Wilson pay Pinnacol $22,898.80, representing $21,110 in purportedly untraceable deposits plus interest on that amount. The money the district court awarded to Pinnacol came from Wilson’s savings account and the so-called child support account; no funds were garnished from Wilson’s checking account. Wilson appealed but died while the appeal was pending and Laughlin, as his personal representative, was substituted as the appellant.

On appeal, the issue was whether the district court abused its discretion by concluding that the funds awarded to Pinnacol were not exempt from garnishment. Colorado’s garnishment process permits judgment debtors to claim exemption. Federal law provides a garnishment exemption for Social Security benefits, but when such benefits are commingled with other funds, they must be traceable to Social Security income; otherwise, they are not exempt. Here, the two large back payments that Wilson received from the SSA were initially directly deposited into his checking account, and the records of that account indicated that the payments were immediately commingled with other funds in the checking account. Further, the bank records, in conjunction with Laughlin’s testimony, show that within days after the SSA payments were deposited into Wilson’s checking account, sums approximating but not equaling the two back payments were transferred into Wilson’s savings account. But the evidence does not show the balances in the savings account on the dates when the two back payments were transferred, so it cannot be concluded that the SSA funds were not commingled again with other funds already in the savings account. Further, the evidence does not show the transactions in the savings account between January 2020 and June 2021, when the garnishments were enforced. Thus, even if the SSA funds were traceable from Wilson’s checking account into his savings account, the evidence presented at the hearing does not show that the savings account contained only SSA funds at the time of garnishment.

As to child support, state law provides an exemption for child support payments, which are exempt only if the money is not commingled, and the payments must be deposited into a custodial account pursuant to CRS § 13-54-102.5(2). CRS § 11-50-110(1)(b) provides that a custodial account is created when money is delivered to a financial institution for credit to an account in the name of the transferor as custodian for a minor under the Colorado Uniform Transfers to Minors Act. Here, the “child support” account was not properly designated as a custodial account under Colorado law at the time of the garnishments, so the funds contained therein were not exempt from garnishment. Accordingly, the district court did not abuse its discretion in denying the exemptions.

The order was affirmed.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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