A garnishing order served on a lawyer by a creditor of a client can raise numerous issues. What should a lawyer holding funds in trust do when receiving such an order? Consider the following:

Are the funds owed to the debtor? 
The debtor must not only have a beneficial interest in the funds, but must be solely entitled to them. Trust funds in which someone else also has a beneficial interest are not subject to attachment. For example, if the funds are the proceeds of the sale of a jointly owned asset, the funds are not likely owed solely to the debtor and, in that case, would not be attachable.

Were the funds owed when the order was issued and served? 
A garnishing order is not prospective. It attaches only monies that were owing at the time it was issued. Thus, for example, if a lawyer holds the purchase price for the debtor’s property in trust at the time the garnishing order is issued but the transfer was not yet registered, the funds are not subject to attachment because they were not then payable to the debtor. In addition, debts are bound only upon service of the garnishing order, meaning the order cannot attach funds that would have been subject to the order at the time it was issued but were paid out prior to service. 

Are there other interests in the funds? 
Non-ownership interests in trust funds may also affect whether they may be attached. Some such interests include:

• Retainers: At least until the engagement is concluded, a lawyer has an interest in funds provided as a retainer – even if the whole retainer has yet to be earned – so long as the retainer was bona fide and not an attempt to shield funds from creditors. 
• Security Interests: Funds that are subject to a security interest or that are proceeds of an asset that was subject to a security interest may not be attachable.
• Lawyers’ Liens: Settlement or judgment proceeds are subject to a lawyer’s lien for fees and disbursements and are not subject to attachment until the lawyer’s lien has been completely satisfied.

Are the funds held unconditionally? 
Funds held on undertakings or trust conditions are not subject to garnishment. Thus, where funds are held on an undertaking not to disburse them without the agreement of two litigants or a court order, they cannot be attached (even where both litigants are the debtors). Likewise, sale proceeds held on substantial and unfulfilled conditions are not caught (except as to amounts that exceed the amount needed to satisfy the conditions). Settlement proceeds that cannot be released because the debtor has yet to execute documents that the lawyer undertook to obtain prior to the release of those funds may be similarly exempt. 

Are there any exemptions? 
Since lawyers frequently act as agents for their clients when receiving funds, they would be well advised to consider whether a statute might preclude attachment. For instance, certain kinds of benefits under the Workers Compensation Act are exempt from execution, as are holdbacks under the Builders Lien Act. There are others as well.

Don’t ignore the order! 
Even where trust funds are not caught by a garnishing order, a dispute note should be filed to avoid a garnishing order absolute. So, when receiving the order: (1) ask the questions above and determine whether payment into court is required (or get legal advice about it); and (2) either pay into court or file a dispute note promptly.