This interesting question was the subject of a Pennsylvania bankruptcy case. Pennsylvania law recognizes tenants by entireties exemption, and Pennsylvania law prohibits wage garnishments. A married debtor filed Chapter 7 bankruptcy individually.

For most of his working life his paychecks were automatically deposited into an entireties bank account His wife deposited her separate money in to the same account. The trustee argued that the debtor’s bank deposits of his paycheck in to a joint account was a fraudulent transfer.

The court found that the debtor did not intentionally make a fraudulent transfer of his paycheck because he did not change his long-standing practice of depositing to a joint account just because he encountered a creditor problem. The court did, however, find that the deposits were “constructive fraud” under Pennsylvania law because the deposits to the joint account were without adequate consideration and were made when the debtor was insolvent.

The debtor argued that the deposits were not “transfers” because the wages were exempt from garnishment and because the fraudulent transfer laws in Pennsylvania (and Florida) exclude exempt assets from the definition of transfers. The bankruptcy court said that even though the wages were exempt from garnishment, the wages became non-exempt property when received by the debtor and were therefore within the definition of assets subject to transfer.

Florida law exempts wages for six months after they are paid if deposited into a financial account. There is no such provision in Pennsylvania law. In Florida, this debtor’s wages would probably retain their characteristic as an exempt asset and therefore not be subject to fraudulent transfer after the debtor received the wages and deposited them into a joint financial account.