Asset protection lawyers are often asked whether social security benefits and other similar entitlements such as IRA and pension distributions, workers compensation proceeds, SSI, Railroad Retirement Benefits and so forth are protected from their creditors’ claims. The answer is both simple and complex.
In virtually all of these situations, creditors of the recipient cannot execute against, garnish, seize or levy the benefits as they are paid. In the usual case the funds are electronically transferred to the recipient’s bank account. So far so good. The funds cannot be grabbed by the creditor. However what happens after the funds hit your bank account? Can the creditor access them at such time? Perhaps, depending upon the nature of the benefit.
Social security benefits, if paid into the recipient’s separate account, cannot be reached by creditors even after the money is received. Pension plan benefits on the other hand can be reached by creditors after it hits the recipient’s account. The reasoning behind the distinction is that the Social security law specifically states that the moneys paid to recipients cannot be reached by creditors. Pension law says that the right to receive the benefit is protected from creditors but not the actual monies received. Michigan court rules on garnishment have recently been changed to give banks guidance on how to handle garnishments from accounts holding social security and similar payments. The objective is to protect the recipients from having their deposited social security payments taken by their creditors. A key to protecting the funds–there should be a separate segregated account created solely for your social security benefits. Nothing else should go in it and the account should be in the name of the recipient only.