Litigation Byte

Fifth Circuit Erie-Guess Excludes Retirement Accounts from Spousal Restitution Garnishment

February 24, 2025

On December 30, 2024, the U.S. Court of Appeals for the Fifth Circuit reversed and remanded a ruling from the U.S. District Court for the Southern District of Mississippi that concerned the denial of Appellant’s motion to dismiss a writ of garnishment, issued pursuant to the Fair Debt Collection Practices Act (FDCPA), for retirement accounts held solely in her name to pay restitution owed by Appellant’s spouse. The Fifth Circuit framed the issue squarely as: “whether, under Mississippi law, a person has a property interest in assets titled solely in his or her spouse’s name that may be garnished under the governing federal statutes.” The Fifth Circuit held that there was no such property interest.

Background

The Appellant’s spouse pled guilty to conspiracy to engage in bank fraud and was ordered to pay restitution pursuant to the Mandatory Victims Restitution Act (MVRA). A Mississippi federal district court permitted the U.S. government to garnish the Appellant’s retirement accounts to partially satisfy the restitution owed by her spouse despite the accounts being held solely in her name. The Court relied on the FDCPA’s language that permits garnishment against property “in which a debtor has a substantial non-exempt interest” even where the property is in the possession, custody, or control of another person. The FDCPA defers to the joint-ownership property laws of the state in which such property is located.

The Appellant filed an appeal asserting that, under Mississippi law, her retirement accounts belonged solely to her and thus should be excluded for purposes of the restitution owed by the Appellant’s spouse because he lacked a “substantial non-exempt interest” in her accounts.

Outcome

Although Mississippi law offered some guidance to the Fifth Circuit as to how to garnish the assets of the Appellant’s spouse under the MVRA and FDCPA, the key issue in this case was whether Mississippi law considered retirement accounts to be marital property and, therefore, subject to garnishment as part of the restitution owed by her spouse. The Appellant contended that as opposed to community property distribution of marital property, Mississippi’s equitable distribution of marital property is operative only at divorce. As such, the Appellant argued that her spouse had no “substantial non-exempt interest” in the retirement accounts held solely in her name because the couple was not in the process of a divorce. The Fifth Circuit sided with the Appellant, ruling that her retirement accounts were not subject to garnishment because they belonged solely to the Appellant. The Court further opined that Mississippi’s equitable distribution of marital property would have only conferred an interest to the Appellant’s spouse in the accounts at the time of a divorce, which was not applicable to this case.

Future Impact

The Fifth Circuit’s Erie-guess in this case will likely provide further guidance for similarly situated parties in Mississippi. Other spouses and relatives will likely seek to expand this case’s precedent to enlarge the scope of assets that may be excluded from the restitution garnishment owed by their respective spouses or family members.

Given that this case turned primarily on the application of Mississippi law, it is uncertain as to whether the U.S. would seek to appeal this case to the U.S. Supreme Court or whether the Supreme Court would be inclined to agree to hear a case with a seemingly solid foundation in Mississippi law and also one that may not provide much instructional precedent for courts applying the laws of other states.