Funds Debtor was Awarded from Ex-Husband’s Retirement Account Could Not be Exempted as Alimony

Funds Debtor was Awarded from Ex-Husband’s Retirement Account Could Not be Exempted as Alimony

The dispute addressed by this decision revolves around the Debtor’s assertion of exemptions in certain money she was paid pursuant to a Qualified Domestic Relations Order, or QDRO, entered in her state court divorce case during the year before the Petition Date. In short, the Debtor filed numerous exemptions pursuant to various provisions of § 522 of the Bankruptcy Code regarding an individual retirement account (the “IRA”) that she scheduled as being worth $32,000. The Debtor established the IRA two months prior to the Petition Date using funds from her ex-husband’s retirement account that were paid to her pursuant to the QDRO. Relevant here, both the Chapter 7 Trustee, and the  Creditor objected to some or all of the exemptions.

In her Amended Schedule C — Property Claimed as Exempt, the Debtor claimed that the IRA was not property to be distributed to her creditors because the IRA was exempt in whole, or in part, under Bankruptcy Code §§ 522(a)(3)(C), (a)(4), (d)(5), (d)(10)(D), (d)(10)(E), (d)(11)(E) or (d)(12).

The Trustee objected to all the claimed exemptions regarding the IRA except the so-called “wild card” exemption pursuant to § 522(d)(5) that allows any property to be exempted from bankruptcy creditors up to the amount of $12,725.00. The Creditor objected to all of the claimed exemptions relating to the IRA, as well as exemptions of other property not relevant to this decision.

The pertinent facts are not in dispute. The Divorce Decree required the Debtor’s ex-husband to transfer a portion of a retirement fund (the “Retirement Fund Distribution”) held in his name to the Debtor. Pursuant to the QDRO, the transfer was completed on or about September 30, 2013, when the Debtor deposited $62,362.12 in an account held at  Bank.  At some point, the Debtor spent approximately $13,865.00 of the Retirement Fund Distribution on personal expenses including, without limitation, child related expenses, attorneys’ fees, car related expenses and a life insurance premium.  On or about October 4, 2013, the Debtor established the IRA at Fidelity Bank using approximately $40,000.00 of the Retirement Fund Distribution. After the Petition Date, on or about December 18, 2013, the Debtor withdrew $1,600.00 from the IRA to pay for a broken water heater.  The Debtor’s post-petition transfer of pre-petition funds was followed by a court order entered on December 19, 2013, essentially freezing the IRA until further order of the court. The IRA was valued at $30,700.00 as of December 19, 2013.

The limited questions the court addresses in this Memorandum of Decision are whether the Debtor is entitled to claim an exemption pursuant to: § 522(d)(10)(D) (alimony, support or maintenance to the extent reasonably necessary for the support of a debtor and any dependent of a debtor), § 522(d)(5) (“wild card” exemption), and § 522(d)(12) (retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under specific sections of the Internal Revenue Code of 1986).

 

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