Are Bonuses Always Exempt From Wage Garnishment?
Florida Statutes exempt from garnishment money paid to a debtor for personal services “whether denominated as wages, salary, commission, or bonus.” Sometimes a “bonus” is not really a bonus for personal services and is not exempt.
In one particular Chapter 7 bankruptcy case a judgment debtor owned with a partner a profitable automobile business. Each partner agreed to pay themselves a monthly salary for their work. Additional business profit was retained and then paid to the owners as “bonuses” in proportion to their equity in the business.
The debtor argued in the bankruptcy case that the monthly salary and bonus was exempt from garnishment because both fell squarely within the definitions of the head of household statute. The court held otherwise. The court said that the bonus paid to the debtor was related to his investment equity and was passive income rather than earnings for personal services.
This case is important for debtors who believe they can characterize as a “bonus” unlimited amounts of business profits so that all money derived from their business is exempt from garnishment by judgment creditors. Courts will look beyond the debtor’s labels and determine what part of compensation is profit from investment and what part is compensation from ongoing personal services. The case is In re Cook.
Last updated on May 22, 2020
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
