Bank error in your favor? Your problem

By Liz Pulliam Weston

If you find a $20 bill on a deserted street, "finders keepers" is the general rule.

But how about a bank error in your favor? Or extra, unearned money in your paycheck? Or an unexpected, unexplained check in the mail?

Turns out there are some pretty firm rules about these windfalls. And the outcome usually isn't in your favor. There are, in fact, several types of found money you shouldn't count on keeping.

Unexplained windfalls

A Minneapolis woman may well become the poster child for what not to do with an unexpected gain.

According to a complaint filed by the state of Minnesota, the 37-year-old social worker received a $2.6 million payment from the state Department of Human Services that had been intended for a local hospital. Instead of immediately reporting the mistake, the woman and a friend opened investment accounts, bought jewelry, purchased four vehicles including two Land Rovers and spent $3,817 at Best Buy.

Six weeks after getting the money, she called the Human Services Department to ask why the check had been sent to her, according to the complaint. When informed the payment was an error and the money had to be returned, the woman reportedly told the department to talk to her attorney and refused to respond to follow-up calls.

As the prosecutor said to a St. Paul Pioneer Press reporter, there's a big difference between keeping money when you can't reasonably be expected to determine the true owner -- like that $20 bill on the street -- and keeping money when you can.

The state had the pair's accounts frozen and is prosecuting for theft as well as civil charges, though the woman returned the unspent money and the property she bought.

A better approach to an unexplained windfall is to keep the money in a separate account while you track down the source. Who gets to keep the interest earned will be one of those things you work out with the rightful owner's attorneys.

Paycheck errors

Few payroll snafus are as large or as persistent as the one that affected the Los Angeles Unified School District this year. Some 32,000 teachers and other employees received erroneous paychecks for months while the district struggled to upgrade to a new computer system. Some were left with so little money that they couldn't pay their mortgages or even buy groceries.

Others were overpaid, but it's doubtful they'll be able to keep the windfalls.

Federal and state laws are pretty clear that overpayments belong to the employer, said Michael O'Toole of the American Payroll Association. And employers have some pretty powerful weapons to get the money back.

If the employer catches the error within five days and your paycheck has been direct-deposited, O'Toole said, your company can simply snatch the money back electronically without your knowledge or consent. An employer also can deduct the overpayment from subsequent paychecks, even if it reduces your pay to an hourly amount that's below the minimum wage.

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With large amounts, though, many employers prefer to work out a voluntary agreement that allows the worker to pay back the money over time. The "voluntary" part is a bit of a misnomer, though, since the company typically can sue an employee who refuses to pay the money back and get a wage garnishment or turn the matter over to a collection agency.

What's more, you'll often have to pay back the gross amount you were paid, even though taxes were taken out the paycheck you received. You can take an adjustment for those taxes when you file your tax return for the year.

State laws may offer somewhat more protection for workers who have been overpaid, O'Toole said, but you still shouldn't assume that you can keep the money -- even if you weren't aware of the overpayment.

Continued: How to handle overpayments

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