California Private Retirement Plans
In re Chen, 2011 WL 2358653 (Bk.N.D.Cal., 2011).
United States Bankruptcy Court, N.D. California.
In re Henry CHEN aka Chien Jung Chen, and Nailing Hung Chen, Debtors.
No. 11–40564 EDJ.
June 8, 2011.
Attorneys and Law Firms
Drew Henwood, Law Offices of Drew Henwood, San Jose, CA, for Debtors.
EDWARD D. JELLEN, U.S. Bankruptcy Judge.
*1 John T. Kendall, trustee in bankruptcy ("Kendall"), has objected to certain claims of exemption by Henry Chen and NaiLing Chen, the above debtors (the "Chens"), as to several annuities and life insurance policies. The court will sustain the objections.
A. The Annuities
The three annuities at issue (hereinafter, collectively, the "Annuities") are: (1) a Jackson National Life Perspective II Annuity in the name of Chien–Jung (Henry) Chen, for which the Chens claim an exemption in the sum of $75,493.68, (2) a Jackson National Life Perspective II Annuity in the name of NaiLing Hung Chen, for which the Chens claim an exemption in the sum of $20,098.29, and (3) an ING GoldenSelect Premium Plus Annuity in the name of Henry Chen, for which the Chens claim an exemption in the sum of $24,445.68.1
The Chens' Schedule C (Property Claimed as Exempt) describes the Annuities as, respectively, a "Jackson National variable annuities 401(k)", a "Jackson National Life Insurance variable annuity", and an "Annuity IRA." It is clear, however, from the Declaration of Johnson C.W. Lee filed in support of Kendall's objection, which includes copies of the Annuities at issue, that the Annuities at issue are those as described herein notwithstanding the fact that the descriptions in Schedule C differ.
The Chens claim the annuities as exempt pursuant to the private retirement plan exemption provided by Cal.Civ.Proc.Code sec. 704.115(a)(1) & (2), and (b).
Cal.Civ.Proc.Code sec. 704.115(b) provides "All amounts held, controlled, or in the process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt." "Private retirement plan" is defined in Cal.Civ.Proc.Code sec. 704.115(a) as follows:
(a) As used in this section, "private retirement plan" means:
(1) Private retirement plans, including but not limited to, union retirement plans.
(2) Profit-sharing plans designed and used for retirement purposes.
Self-employed retirement plans and individual retirement annuities or accounts provided for in the Internal Revenue Code of 1986, as amended, including individual retirement accounts qualified under Section 408 or 408A of that code, to the extent the amounts held in the plans, annuities, or accounts do not exceed the maximum amounts exempt from federal income taxes under that code.
The Chens argue, based on certain promotional materials they received in connection with the Annuities that extol the retirement benefits of the Annuities, and their "subjective intent" to use the Annuities for retirement purposes, that the Annuities qualify as "private retirement plans" within the meaning of Cal. Civ. P.Code sec. 704.115(a).
This argument fails. In In re Lieberman, 245 F.3d 1090, 1091 (9th Cir.2001), the Ninth Circuit concluded that the "California legislature intended the exemption provided by Cal.Civ.Proc.Code sec. 704.115(a)(1) to apply to a retirement plan created by a private employer or employee organization, as opposed to an arrangement by an individual to use specified assets for retirement purposes." Similarly, in In re Simpson, 557 F.3d 1010, 1018 (9th Cir.2008), the Ninth Circuit noted with reference to Cal.Civ.Proc.Code sec. 704.115(a)(1) that "A survey of recent California Court of Appeal cases construing the statute does not reveal a single instance in which that court has interpreted section 704.115(a)(1) to include independent retirement investments [citations omitted]."
*2 Under these holdings, then, the Chens' subjective intent to use the Annuities for retirement purposes is irrelevant.
Because the Annuities were not created by a private employer of the Chens, or by an employee organization, they cannot be exempt under Cal.Civ.Proc.Code sec. 704.115(a)(1). And because they are not a profit sharing plan, they cannot be exempt under Cal.Civ.Proc.Code sec. 704.115(a)(2).
The Chens did not claim the Annuities as exempt pursuant to Cal.Civ.Proc.Code sec. 704.115(a)(3), nor did they brief the issue of the applicability of that provision to the Annuities. Suffice it to say for present purposes, however, that based on the facts and analysis set forth in the Declaration of Jay D. Crom filed in support of Kendall's objection, the objection will also be sustained with respect to Cal.Civ.Proc.Code sec. 704.115(a)(3).
B. The Life Insurance Policies
The four life insurance policies at issue (hereinafter, collectively, the "Life Insurance Policies") are unmatured. Kendall believes that the Chens are entitled to borrow against them, subject to certain loan value limitations in the policies. The Life Insurance Policies were issued by New York Life, Transamerica, and Western Reserve Life, which issued two policies for the benefit of, respectively, Andrew Chen and Jennifer Chen.
The Chens claim that the Life Insurance Policies are exempt pursuant to Cal Civ. Proc.Code sec. 704.100(a), which provides: "Unmatured life insurance policies (including endowment and annuity policies), but not the loan value of such policies, are exempt without making a claim." The parties agree that the maximum aggregate loan value that the Chens may exempt is $22,950.
The Chens state in their reply brief that two of the policies are "essentially" held by them "in trust" for their children. They provide no authority or documentation in support of this contention, and have not disputed that they enjoy, for their own benefit, the loan values of the Life Insurance Policies. Therefore, the court does not consider such statement to be a valid argument against Kendall's objection to the Chens' claim of exemption as to the Life Insurance Policies, or right to include such policies as part of the bankruptcy estate pursuant to Bankruptcy Code sec. 541(a)(1). See In re Woodson, 839 F.2d 610, 617–18 (9th Cir.1988) (discussing the difference between the rights of an owner of a life insurance policy, which may be included in the owner's bankruptcy estate under Bankruptcy Code sec. 541(a)(1), and the rights of a beneficiary of a life insurance policy).
The parties are not in full agreement as to the specific loan values of the Life Insurance Policies. Consequently, the court will issue its order sustaining Kendall's objection to the extent that the loan values of the Life Insurance Policies exceed $22,950, reserving jurisdiction to resolve any disputes in connection therewith.
The court will sustain Kendall's objections to the Chens' claims of exemption for the Annuities, and claims of exemptions for the Life Insurance Policies to the extent that the loan values thereof exceed $22,950, reserving jurisdiction to resolve any disputes in connection with the loan value issue.
*3 The court requests counsel for Kendall to submit a proposed order within 10 days.
TEXT OF CCP § 704.115
California Code of Civil Procedure § 704.115.
(a) As used in this section, “private retirement plan” means:
(1) Private retirement plans, including, but not limited to, union retirement plans.
(2) Profit-sharing plans designed and used for retirement purposes.
(3) Self-employed retirement plans and individual retirement annuities or accounts provided for in the Internal Revenue Code of 1986, as amended, including individual retirement accounts qualified under Section 408 or 408A of that code, to the extent the amounts held in the plans, annuities, or accounts do not exceed the maximum amounts exempt from federal income taxation under that code.
(b) All amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.
(c) Notwithstanding subdivision (b), where an amount described in subdivision (b) becomes payable to a person and is sought to be applied to the satisfaction of a judgment for child, family, or spousal support against that person:
(1) Except as provided in paragraph (2), the amount is exempt only to the extent that the court determines under subdivision (c) of Section 703.070.
(2) If the amount sought to be applied to the satisfaction of the judgment is payable periodically, the amount payable is subject to an earnings assignment order for support as defined in Section 706.011 or any other applicable enforcement procedure, but the amount to be withheld pursuant to the assignment order or other procedure shall not exceed the amount permitted to be withheld on an earnings withholding order for support under Section 706.052.
(d) After payment, the amounts described in subdivision (b) and all contributions and interest thereon returned to any member of a private retirement plan are exempt.
(e) Notwithstanding subdivisions (b) and (d), except as provided in subdivision (f), the amounts described in paragraph (3) of subdivision (a) are exempt only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires. In determining the amount to be exempt under this subdivision, the court shall allow the judgment debtor such additional amount as is necessary to pay any federal and state income taxes payable as a result of the applying of an amount described in paragraph (3) of subdivision (a) to the satisfaction of the money judgment.
(f) Where the amounts described in paragraph (3) of subdivision (a) are payable periodically, the amount of the periodic payment that may be applied to the satisfaction of a money judgment is the amount that may be withheld from a like amount of earnings under Chapter 5 (commencing with Section 706.010) (Wage Garnishment Law). To the extent a lump-sum distribution from an individual retirement account is treated differently from a periodic distribution under this subdivision, any lump-sum distribution from an account qualified under Section 408A of the Internal Revenue Code shall be treated the same as a lump-sum distribution from an account qualified under Section 408 of the Internal Revenue Code for purposes of determining whether any of that payment may be applied to the satisfaction of a money judgment.
Published Court Opinions regarding California private retirement plans (sorted by date):
In re Daniel, 771 F.2d 1352 (9th Cir., 1985).
In re Bloom, 839 F.2d 1376 (9th Cir., 1988).
In re Crosby, 162 B.R. 276 (Bk.C.D.Cal., 1993).
Yaesu Electronics Corp. v. Tamura, 28 Cal.App.4th 8, 33 Cal.Rptr.2d 283 (1994).
Schwartzman v. Wilshinsky, 50 Cal.App.4th 619, 57 Cal.Rptr.2d 790 (1996).
In re Friedman, 220 B.R. 670 (9th Cir.B.A.P., 1998).
In re Phillips, 206 B.R. 196 (Bk.N.D.Cal., 1997).
In re Lieberman, 245 F.3d 1090 (9th Cir., 2001).
In re Barnes, 275 B.R. 889 (Bk.E.D.Cal., 2002).
In re Stern, 345 F.3d 1036 (9th Cir., 2003).
McMullen v. Haycock, 147 Cal.App.4th 753, 54 Cal.Rptr. 3d 660 (2007).
In re Rucker, 570 F.3d 1155 (9th Cir., 2009).
In re Segovia, 404 B.R. 896 (2009).
In re Simpson, 557 F.3d 1010 (2009).
In re Beverly, 374 B.R. 221 (9th Cir., B.A.P., 2011).
In re Chen, 2011 WL 2358653 (Bk.N.D.Cal., 2011).
Marriage of La Moure, 221 Cal.App.4th 1463, 15 Cal.Rptr.3d 417 (2013).
Salameh v. Tarsadia Hotel, 2015 WL 6028927 (S.D.Cal., 2015).
O'Brien v AMBS Diagnostics, LLC, 38 Cal.App.5th 553, 251 Cal.Rptr.3d 41 (Aug. 8, 2019).
Only published court opinions are included; non-published opinions are not useful as legal precedent and should not be relied upon for any purpose.
ARTICLES ON CALIFORNIA PRIVATE RETIREMENT PLANS
The California Private Retirement Plan: Separating Fact From Fiction (Jay Adkisson, Forbes.com, Dec. 28, 2015).
MAIN SECTIONS OF THIS WEBSITE
Leading Court Opinions and Legislative History of CCP § 704.115 -- The published court opinions, both state and federal, and the legislative history of CCP § 704.115 give valuable insight into how California private retirement plans should be properly structured and used. See Court Opinions and Legislative History
Voidable Transactions Issues (formerly: Fraudulent Transfers) -- As amply demonstrated by the case law, the law of voidable transactions (formerly: fraudulent transfers) has frequently and successfully been used by creditors to avoid transfers made to California Private Retirement Plans. Please see our Voidable Transactions page for more.
Plan Defect Issues -- Creditors have frequently been successful in busting California Private Retirement Plans because either (1) there was no real "plan", or (2) the plan was not substantially followed by the debtor. Read more on our Plan Defect Issues page.
ERISA, Tax-Qualified Plans and Non-Tax Qualified Plans -- Considers the types of private retirement plans as measured by ERISA and tax law, including ERISA-qualified plans, tax-qualified plans, and non-qualified plans. Read more on our ERISA and Tax Issues page.
Post-Distribution Exemption-Tracing Issues -- Considers the application of the exemption tracing statute, CCP § 703.080, to California Private Retirement Plans. Please visit our Post-Distribution Exemption-Tracing Issues page.
Services & Contact Information -- Jay Adkisson assists clients in creating California Private Retirement Plans in appropriate circumstances, and reviews existing plans for their defensibility against creditor challenges. Jay is also involved with litigation in attacking PRPs from the creditor's side, and defending them from the debtor's side. Please see our Services & Contact Information page.
MORE INFORMATIONAL WEBSITES BY JAY ADKISSON
© 2020 by Jay D. Adkisson. All Rights Reserved. No claim to original government works. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. Other. Questions about this website should be directed to jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678. This website is https://privateretirementplans.com