When you owe someone money in Michigan, you may find yourself on the wrong side of a lawsuit. Your personal assets are at risk. However, there are limits to what can be taken from you. Your pension benefits are generally excluded from lawsuits and cannot be garnished. However, there is an exception to this rule.
The Employee Retirement Income Security Act (ERISA) prevents pensions from being taken away from you in most cases. Your pension benefit cannot be transferred or assigned to another person in most situations. In other words, ERISA prevents your pension payments from being garnished in most cases. This protection arises because your pension funds are held in a trust account. The trust account places a legal separation between you, your future savings and your employer's corporate funds.
You won't have to worry about creditors taking your future retirement. Even if a creditor tries to file a claim against your pension, he won't get anything. You get the security of knowing that your retirement plans are unaffected by future lawsuits and even a bankruptcy. Furthermore, your employer's creditors cannot come after pension benefits. Finally, even if your employer goes bankrupt due to a lawsuit, the Pension Benefit Guaranty Corp. (PBGC) steps in to make pension payments to you.
There is one exception to the exclusion of pensions from garnishment. A transfer or assignment of benefits can be done through a court order called a qualified domestic relations order (QDRO). This order preempts certain rules in ERISA and allows the court to split up your pension for a qualified event. A qualified event must relate to the division of assets in a divorce due to state community property laws, child support payments or alimony. Michigan is an "equitable distribution" state. This means that -- while there is no guarantee your your property will be taken -- this may end up happening in many cases.
Consider using a 401k plan or another qualified retirement plan. Retirement accounts are also protected by ERISA laws. These accounts prevent account funds from being assigned or transferred to another individual or company. However, these accounts are also subject to transfers under a QDRO. Additionally, Michigan does not protect your retirement account from being garnished to pay tax debts owed to the state or to the federal government.