Remember the Big Stuff: Protecting Retirement and Business Assets

Hon. Susan Kelley, U.S. Bankruptcy Court (Milwaukee, WI)
Behrooz Vida, Esq. (Bedford, TX)

Retirements asset issue. ERISA qualified plans excluded from bankruptcy estate. Nobody knew what was ERISA-qualified and not. IRAs may not have been qualified under Patterson but SUpreme Court came along and said debtor’s own IRA is unquestionably exempt.

Trustees have argued that inherited IRAs are different. From mother, father, they die and debtor inherits. Spousal IRAs are not part of the discussion.

Pre-BAPCPA, under Wisconsin law was not exempted. Post-BAPCPA, 8th Circuit BAP held inherited IRA Nessa (Nissa) was exempted. WDWi In re Clark judge said inherited IRA did not qualify as exempt; were the funds retirement funds? Yes as to dead grandmother, not as to the debtor. They had to be saved by the debtor for retirement; once person died, funds lost their identity as “retirement funds.”

Reversed by US District Court.

Chilton held exempted.

Annuities come up all the time in pre-bankruptcy planning. Pre-filing debtor takes non-exempt cash and converts to an annuity.

Pigs and hogs.

Conversion wasn’t held improper so much as failure to disclose was. Need to take into account the age and need of debtor.

Transfer of asset within lookback period.

Life Insurance. BAP Arizona said AZ life insurance exemption only good for dependents.

522b12 – retirements funds exempt under IRC are exempt – doesn’t matter if you’re in an opt out state, everyone gets to take the exemption.

If the debtor gives a lien on the IRA to the brokerage account for unpaid fees, that takes it out of the exemption.


541a2 creates the estate. Court looks to state law to determine interests.

An LLC is a blend of partnership and corporation.
look to ownership interests as well as manager interests
member’s ownership is personal property interest which becomes property of the estate
holds true for single-member as well as multi-member LLC
FRBP 4003b1 – trustee gets 30 days to object to exemption

In a multi-member LLC, does the trustee get any management or voting rights? Depends on state law as well as the Operating Agreement. Look to default provisions.

Taylor – exemptions case before Schwab v. Reilly. Under federal scheme we’re looking at interest in property up to a set dollar amount. If you exempt “100% FMV” and trustee doesn’t object within 30 days of 341, you win.

Post-petition appreciation of an asset goes to trustee. If you’ve got an asset that’s appreciating, file a motion to compel abandonment.

2 protect an LLC, you need planning and time. Luxuries most debtors don’t have. In terms of planning, make the OA as restrictive as possible. In terms of time, outlive the lookback period.

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