A California appeals court rules that private pension funds that are exempt from execution by creditors do not lose their exempt status when rolled over to an IRA. McMullen v. Haycock (Cal. Ct. App., 2nd Dist., No. B187748, Feb. 13, 2007).
A California court awarded attorney Hugh McMullen more than $500,000 in damages when a suit brought against him by fellow attorney Don Haycock was ruled to be unfounded and malicious. Mr. McMullen sought to recover most of the judgment from Mr. Haycock's $400,000 IRA, which was funded when Mr. Haycock rolled over his private retirement plan.
At trial, the dispositive issue was whether the funds, which would have been exempt as retirement funds, retained their exempt status when rolled over into an IRA. State law provides a limited exemption for IRAs, up to the amount required for the support of the debtor and his dependents. The trial court exempted only $100,000 of the IRA assets, concluding that when the pension assets were rolled over into the IRA, they lost their protected status. Mr. Haycock appealed.
The Court of Appeal of California reverses, finding a legislative intent to safeguard a source of income for retirees at the expense of creditors. Refusing to follow an earlier bankruptcy court ruling that pension funds lost their protected status when rolled over to an IRA, the court says it sees 'no policy reason to extinguish the full exemption simply because the assets are deposited in an IRA rather than in a safe deposit box or under a mattress.' The court remands with instructions that Mr. Haycock be accorded the full exemption.
To download the full text of this decision in PDF format, go to: https://www.courtinfo.ca.gov/opinions/documents/B187748.PDF.
(If you do not have the free PDF reader installed on your computer, download it here.)
For a news article on the case in The San Francisco Chronicle, click here.
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