Pinnacol v. Laughlin: Court Applies “Reasonably Traceable” Test to SSA Benefits

Todd Wilson was injured at work in 2015 and began receiving temporary workers’ compensation benefits from Pinnacol Assurance. Several years later, the Social Security Administration determined that Wilson was entitled to Social Security disability benefits beginning in July 2016. As a result, Wilson received two retroactive lump-sum payments from the Social Security Administration in December 2019 and January 2020.

Because the retroactive disability benefits covered a period during which Wilson had already received workers’ compensation payments, Pinnacol Assurance sought recovery of an alleged overpayment. In July 2020, an administrative law judge determined that Wilson owed Pinnacol Assurance $22,938.89. The district court later converted that determination into a civil judgment.

When no portion of the judgment was paid, Pinnacol Assurance initiated garnishment proceedings against Wilson’s bank accounts in June 2021.

Claim of Exemption and Evidentiary Hearing

Wilson filed a claim of exemption from garnishment, asserting that a substantial portion of the funds in his accounts consisted of Social Security disability benefits protected from garnishment under federal law. He also asserted that certain funds were exempt under Colorado law because they consisted of child support payments.

The district court held an evidentiary hearing. Patricia Laughlin, Wilson’s mother, testified as the sole witness. She explained that she served as Wilson’s representative payee and managed his finances. According to her testimony, the Social Security back payments were initially deposited into Wilson’s checking account and then transferred into a savings account. Ongoing monthly Social Security payments were deposited into the checking account and used for living expenses.

Laughlin also testified that other funds were deposited into Wilson’s accounts, including maintenance payments from an ex-spouse, child support payments deposited into a separate account, and monetary gifts she personally transferred into Wilson’s checking account after the administrative order establishing the overpayment.

District Court’s Ruling on Traceability

After the hearing, the district court concluded that Social Security benefits retain their exemption from garnishment only if they are reasonably traceable. The court determined that the funds in Wilson’s accounts had been commingled with nonexempt funds, including gifts and other deposits, making much of the money no longer reasonably traceable to Social Security disability income.

Rather than denying the exemption request in full, the district court directed Pinnacol Assurance to identify deposits that were not reasonably traceable to exempt sources. Based on that review, the court ordered Wilson to pay Pinnacol Assurance $22,898.80, representing funds deemed nonexempt, plus interest.

Wilson appealed. While the appeal was pending, he died, and Patricia Laughlin was substituted as the personal representative of his estate.

Appellate Review of Social Security Exemptions

The Colorado Court of Appeals reviewed the district court’s order, applying de novo review to legal questions and deferential review to factual findings and tracing determinations.

The court reaffirmed that federal law broadly protects Social Security benefits from garnishment. It also explained that this protection is not absolute when benefits are commingled with other funds. Once commingling occurs, the exemption applies only to amounts that remain reasonably traceable to Social Security income.

The court declined to adopt a mandatory accounting method for tracing commingled funds. Instead, it emphasized that trial courts have discretion to select a tracing approach suited to the specific facts of each case.

Application to Wilson’s Accounts

The Court of Appeals concluded that the evidence supported the district court’s findings. The Social Security back payments were first deposited into a checking account that already contained other funds, resulting in immediate commingling. Subsequent transfers into the savings account did not establish that the savings account contained only Social Security funds at the time of garnishment.

With respect to the account used for child support payments, the court determined that the statutory requirements for exemption were not met. The evidence did not show that the account qualified as a custodial account under Colorado law as it existed at the time of garnishment.

Because the funds were not shown to be reasonably traceable to exempt sources, the court held that the district court did not abuse its discretion.

The Court’s Decision

The Colorado Court of Appeals affirmed the district court’s order allowing garnishment of the nonexempt funds.

Assistance With Social Security Disability Matters

If you’re facing issues involving Social Security disability benefits, Whitcomb Selinsky PC handles Social Security Disability matters. Reach out to our team to schedule a consultation and learn how our team can assist with your situation.