In re Montavon
| Decision Date | 17 May 1985 |
| Docket Number | Bankruptcy No. 5-84-310. |
| Parties | In re Kevin James MONTAVON, and Deborah Lynn Montavon, individually and d/b/a Montavon Pharmacy, Inc., Debtors. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota |
Shawn M. Dunlevy, pro se.
Lionel H. Peabody, Duluth, Mn., for defendant/respondent.
ORDER SUSTAINING TRUSTEE'S OBJECTION TO DEBTORS' CLAIM OF EXEMPTION
The above-captioned matter came on before the undersigned United States Bankruptcy Judge on April 24, 1985, upon the Trustee's objection to Debtors' claim of exemption. Trustee Shawn M. Dunlevy appeared pro se. Debtors appeared by their attorney, Lionel H. Peabody. Upon Debtors' Affidavit, the arguments of counsel, and all of the other files and records herein, the Court concludes that the Trustee's objection must be sustained.
1. That Debtors filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code in this Court on November 14, 1984.
2. That Debtors' Schedule B-2 on their Bankruptcy Petition included an entry for Individual Retirement Accounts ("IRAs") for both individual Debtors, with scheduled values of $4,755.00 for Debtor Kevin James Montavon and of $2,455.00 for Debtor Deborah Lynn Montavon. A notation indicates that these values were current as of February 1, 1984.
3. That, on their Schedule B-4, Debtors claimed the full outstanding balances in both IRAs as fully exempt under 11 U.S.C. § 522(d)(10).
4. That, by means of an amendment filed on January 16, 1985, Debtors amended their Schedule B-4 to claim the IRAs as exempt under both 11 U.S.C. § 522(d)(10) and § 522(d)(5).
5. That, other than their IRAs, Debtors claim the following property as exempt under § 522(d)(5):
Sporting equipment $150.00
Camera, weapons 70.00
Cash and bank accounts 4,292.83
_________
Total $5,512.83
6. That Debtors' Trustee in bankruptcy filed an objection to Debtors' claim of exemption in the IRAs on January 16, 1985. Debtors timely requested a hearing on the Trustee's objection.
7. That Debtors have since stated by Affidavit that they hold their IRAs under contract with the American United Life Insurance Company, and that the actual current values of the IRAs are as follows:
Kevin James Montavon $4,320.00
Deborah Lynn Montavon $2,795.00
The values stated are the present cash values of the IRAs, consisting of accumulated deposits and interest thereon, as they stand on deposit with American United Life Insurance Company. If Debtors were to withdraw funds from their IRAs, the amounts withdrawn would be subject to a withdrawal penalty payable to the Internal Revenue Service and would be taxable as ordinary income to Debtors in the year of withdrawal.
8. That Debtors presently have three children, all of whom are below the age of five years. Debtors allege total monthly living expenses for themselves and their dependents of $1,491.00.
9. That, since the date of filing of their Petition in this Court, Debtors have relocated to Garland, Texas, where Debtor Kevin James Montavon has taken employment as a pharmacist. Debtors' present family income consists of the wages from this employment and totals approximately $2,020.00 net per month, calculated at the rate of 4.3 weeks per month.
10. That Debtors claimed no homestead as exempt in their bankruptcy proceedings and do not own a home at present. They have expressed their intent to use the balances in their IRAs as a down payment on the purchase of a home or, possibly, for a down payment on the purchase of a new automobile for use by Debtor Kevin James Montavon for his lengthy commute to and from his employment. Debtors may have to replace their present automobile in the near future due to its age and condition.
Debtors have claimed a portion of their IRA balances as exempt under § 522(d)(5). Under the language of that statute, as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984,2 a debtor is allowed to exempt property of any kind subject to a two-fold limitation. First, the statute allows an exemption in the specific amount of $400.00. Second, the statute allows a "pourover" exemption in an amount equal to the available amount of the homestead exemption under § 522(d)(1) which the debtor does not actually use in the case, subject to a ceiling of $3,750.00. The entitlement to exemptions is individual, and husband-wife debtors in a joint case may cumulate their exemptions to apply to jointly-owned property. 11 U.S.C. § 522(b). Debtors have claimed personalty and liquid assets valued at $4,512.83 as exempt under § 522(d)(5), leaving a remaining exemption of $3,787.17 to apply to their IRA balances. They claim the remainder of their IRA balances as exempt under § 522(d)(10)(E).
The Trustee has objected to Debtors' claim of exemption on the ground that any portion of Debtors' IRA balances not exemptible under the § 522(d)(5) is not exempt under § 522(d)(10)(E), on two major grounds. First, he argues that pre-retirement funds in IRAs are not equal or equivalent to the right to receive payments under pension, profit-sharing, annuity, or other retirement plans or contracts. Second, he argues that the funds in the IRAs are not "reasonably necessary for the support of the debtor and any dependent of the debtor". He maintains that several factors in Debtors' present financial condition compel the Court to adopt his second conclusion. He notes that Debtors are not presently drawing on the IRAs to meet their family living expenses. He notes that both Debtors are young persons and have the earnings opportunities of full lives and careers ahead of them. Lastly, he notes that, as of the date of filing of Debtors' Petition, Debtors held substantial liquid assets which were sufficient to meet their immediate needs; he argues that, as a result, Debtors did not need the funds in the IRAs to meet their short-term needs.
In response, Debtors first argue that the IRAs are an "annuity . . . on account of . . . age . . ." under § 522(d)(10)(E). Second, Debtors argue that now or in the near future, their IRAs are "reasonably necessary" for their support and the support of their children. They argue that application of the IRA balances to a down payment on a homestead would probably reduce their housing expenses in the short and long term, and, in any event, use of the IRA balances to purchase a new car may soon become necessary due to the advanced age and deteriorated condition of their present vehicle. They point out that the total amount of their monthly living expenses is not unreasonable for a family of five and, under their calculation, the total portion of the IRA balances which they seek to claim as exempt under § 522(d)(10)(E) is equivalent to no more than two months' worth of their living expenses. They argue that, were Debtor Kevin James Montavon to unexpectedly die or become disabled, Debtors and their dependents would certainly need the IRA balances for their immediate care and support.
The Bankruptcy Courts have examined the exemptibility of a variety of different pension and profit-sharing plans, funds, annuities, and other similar assets under § 522(d)(10)(E). In particular, in a number of reported and unreported decisions the Bankruptcy Judges of this District have dealt with this issue. In Re Werner, 31 B.R. 418 (Bankr.D.Minn.1983); In Re Miller, 33 B.R. 549 (Bankr.D.Minn.1983); In Re Bari, 43 B.R. 253 (Bankr.D.Minn.1984); In Re Sederstrom, 52 B.R. 448 (Bankr.D. Minn.1985); In Re Rosen, 52 B.R. 96 (Bank.D. Minn.1985).
The threshold question joined by the Trustee is whether Debtors' IRAs can fairly be characterized to be property of the type subject to the exemption under § 522(d)(10)(E). Some Courts have held that, by their very nature, individually-controlled plans or accounts which allow the long-term deferral of taxes on deposited income are not entitlements of the sort to which Congress intended the exemption under § 522(d)(10)(E) to apply. These Courts have focused on the account-holder's great control over the corpus of the account and the account-holder's ability to withdraw and divert the funds in the account to non-retirement purposes, subject only to the IRS penalty. See, e.g., In Re Clark, 711 F.2d 21 (3rd Cir.1983) (majority opinion); In Re Pauquette, 38 B.R. 170, 173-74 (Bankr.D.Vt.1984). Cf., In Re Talbert, 15 B.R. 536 (Bankr.W.D.La.1981) (); In Re Howerton, 21 B.R. 621 (Bankr.N.D.Tex. 1982) (). In a recent case, this Court and, apparently, the parties assumed without discussion that a substantial balance in a Keogh Plan held by an elderly Debtor was an asset of a nature to be exemptible under MINN.STAT. § 550.37, subd. 24.3 In Re Rosen. Were this issue pivotal, the Court would be inclined to hold that a balance in a Keogh Plan or IRA is an exemptible asset within the ambit of § 522(d)(10)(E), at least where the debtor's right to payment has already matured by the attainment of the statutory retirement age. In Re Clark at 23-24 (Becker, C.J., concurring). See also In Re Sederstrom, at 451.4 However, since the Court is sustaining the Trustee's objection in the instant case on other grounds, it need...
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