In re: Brian A. Lerbakken, Debtor

Morelaw Internet Marketing

National Find A Lawyer Directory

The Debtor, Brian Lerbakken, appeals the bankruptcy court’s1 Order dated

May 29, 2018 disallowing his claimed exemptions in a Wells Fargo 401K and an

IRA account.

BACKGROUND

In September 2014 Lerbakken retained Sieloff & Associates, P. A. (Sieloff)

to represent him in his divorce proceeding in Lake County, Minnesota. The state

court’s order dissolving the marriage adopted the parties’ stipulated property

settlement which awarded Lerbakken one-half of the value in his ex-wife’s Wells

Fargo 401K and an entire IRA account (Accounts). The order directed counsel to

submit a Qualified Domestic Relations Order related to these assets. Based upon

the available record, the briefing and representations of counsel this was not

accomplished and Lerbakken has undertaken no other action to obtain title or

possession of the accounts.

Lerbakken filed a voluntary Chapter 7 petition on January 23, 2018. His

Schedule C claimed the Accounts as exempt retirement funds for the values agreed

to under the property settlement. Sieloff was listed as a creditor for its unpaid fees.

It objected to Lebarkken’s claim of exemption in the Accounts. The bankruptcy

court disallowed the exemption on the basis that the Accounts were not retirement

funds as defined by Clark v. Rameker, 134 S. Ct. 2242 (2014). This appeal

followed.

1 The Honorable Robert J. Kressel, Judge, United States Bankruptcy Court for the

District of Minnesota.

2

STANDARD OF REVIEW

Whether Lerbakken is entitled to claim of an exemption in the Accounts

presents a question of law which is subject to de novo review. Rucker v. Belew (In

re Belew), 588 B.R, 875, 876 (B.A.P. 8th Cir. 2018).

DISCUSSION

As permitted, Lerbakken elected to use federal law in support of his claim of

exemption in the identified Accounts. Whether a claim of exemption is proper

begins with the relevant statutory authority which states: “Retirement funds to the

extent that those funds are in a fund or account that is exempt from taxation under

section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of

1986.” 11 U.S.C. §522(d)(12)(2018). 2 Lerbakken contends that his interest in the

Accounts satisfies this statutory definition because the proceeds are not taxable to

his ex-wife and this status inures to his benefit.

The parties supply extensive arguments related to the potential tax

consequences, penalties and ERISA provisions applicable to the Accounts.

Standing alone, these issues are not dispositive of their exempt status. 11 U.S.C.

§522(d)(12) contains two requirements: (1) that the amount must be retirement

funds; and (2) that the retirement funds must be in an account that is exempt from

taxation under one of the provisions of the Internal Revenue Code set forth therein.

Rice v. Allard (In re Rice), 478 B.R. 275, 280 (E.D. Mich. 2012). In order for the

Accounts to be exempt both of these elements must be established.

2 The Debtor identifies 11 U.S.C. §522(b)(3)(C) in support of the exemptions. That

provision contains language identical to 11 U.S.C. §522(d)(12) but does not

actually grant the exemption.

3

In Clark v. Rameker, 134 S. Ct. 2242 (2014) the Supreme Court considered

whether an inherited IRA qualified as a retirement fund for purposes of exemption

under federal law. The Court’s unanimous ruling first addressed the definition of

retirement funds.

The Bankruptcy Code does not define “retirement funds,” so we

give the term its ordinary meaning. The ordinary meaning of

“fund[s]” is “sum[s] of money . . . set aside for a specific purpose.”

And “retirement” means “[w]ithdrawal from one’s occupation,

business, or office.” Section 522(b)(3)(C)’s reference to

“retirement funds” is therefore properly understood to mean sums

of money set aside for the day an individual stops working.

Id. at 2246. The opinion clearly suggests that the exemption is limited to

individuals who create and contribute funds into the retirement account.

Retirement funds obtained or received by any other means do not meet this

definition.

In an attempt to meet the standard enunciated in Clark, Lerbakken asserts

the 401K and IRA represent marital property that his ex-wife saved for their joint

retirement. He further states that he intends to use the proceeds of the Accounts for

support upon his retirement. Courts are not required to address these subjective

considerations in determining the exemption issue.

To determine whether funds in an account qualify as

“retirement funds,” courts should not engage in a caseby-

case, fact-intensive examination into whether the

debtor actually planned to use the funds for retirement

purposes as opposed to current consumption. Instead,

[Courts should] look to the legal characteristics of the

account in which the funds are held, asking whether, as

an objective matter, the account is one set aside for the

day when an individual stops working.

Id. (emphasis added).

4

We recognize that Lerbakken’s interest in the 401K and IRA did not arise in

the identical manner as the IRA account addressed in Clark. This distinction is not

material to our de novo review. Any interest he holds in the Accounts resulted

from nothing more than a property settlement. Applying the reasoning of Clark

the 401K and IRA accounts are not retirement funds which qualify as exempt

under federal law.

The bankruptcy court’s Order is AFFIRMED.