In re Nelson

• Citation: 274 B.R. 789
• Decision Date: 21 March 2002
• Docket Number: No. 01-6072MN.,01-6072MN.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit
• Parties: In re Ronald J. NELSON, Debtor. Ronald J. Nelson, Debtor-Appellant, v. James E. Ramette, Trustee-Appellee, Richard Schieffer, and the law firm of Anderson, Dove, Fretland & Van Valkenburg, Creditor-Appellee.

Page 789

274 B.R. 789

In re Ronald J. NELSON, Debtor.

Ronald J. Nelson, Debtor-Appellant, v. James E. Ramette, Trustee-Appellee, Richard Schieffer, and the law firm of Anderson, Dove, Fretland & Van Valkenburg, Creditor-Appellee.

No. 01-6072MN.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: March 6, 2002.

Filed: March 21, 2002.

Randall L. Seaver, Burnsville, MN, for appellee Ramette.

David G. Parry, T. Chris Stewart, on brief, Minneapolis, MN, for appellee Schieffer.

Before KOGER, Chief Judge, SCHERMER and FEDERMAN, Bankruptcy Judges.

KOGER, Chief Judge.

Debtor/Appellant Ronald J. Nelson was awarded an interest in his former spouse's ERISA-qualified retirement plan in the amount of approximately $71,000.00 pursuant to a divorce decree and a Domestic Relations Order. After the divorce, but prior to receiving a distribution from the retirement plan, Nelson filed for Chapter 7 bankruptcy relief and asserted that the interest was either not property of his bankruptcy estate, or, alternatively, that it was exempt under either 11 U.S.C. § 522(d)(5) or 11 U.S.C. § 522(d)(10)(E). The bankruptcy court ruled that the interest was property of the bankruptcy estate and was not exempt except in the amount of $4,525.00, which was the remaining sum available under the wildcard exemption set forth in 11 U.S.C. § 522(d)(5). Nelson appeals only from the bankruptcy court's ruling that his interest in the ERISA-qualified retirement plan was property of the bankruptcy estate. For the following reasons, we reverse.

Factual Background

Ronald J. Nelson was divorced from Denise Nelson in September of 2000. As part of the divorce proceedings, the state court awarded Ronald an interest in Denise's Northwest Airlines Retirement Savings Plan for Contract Employees in the amount of $71,089.00, which was the entire marital value of this asset.¹ There is no dispute that this retirement plan is a qualified plan under the Employee Retirement Income Security Act of 1974 ("ERISA"). On November 17, 2000, the state court issued a Domestic Relations Order to effect the distribution to Ronald from the retirement plan. Pursuant to the Domestic Relations Order, Ronald was made an alternate payee under the retirement plan, and is entitled to receive a single lump sum distribution from the plan as soon as administratively feasible after Northwest Airlines determines that the Domestic Relations Order constitutes a qualified domestic relations order and the time for administrative appeals expires. However, in March 2001, Northwest Airlines determined that the state court's Domestic Relations Order does not meet the requirements of a qualified domestic relations order, and it will not make a distribution to Ronald pursuant to that order until certain language in the order is modified to its satisfaction. During oral argument counsel informed us that the Domestic Relations Order has not yet been modified, but for purposes of this appeal, counsel agreed that the Domestic Relations Order constitutes a qualified domestic relations order and that only technical amendments are required to satisfy Northwest Airlines. To date, the funds due Ronald have not been distributed to him, but remain in the retirement plan.

On February 26, 2001, Ronald filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Ronald claimed that the interest in the retirement plan was not property of the bankruptcy estate, or, alternatively that it was exempt under either 11 U.S.C. § 522(d)(5) or 11 U.S.C. § 522(d)(10)(E). Both the Chapter 7 Trustee and the creditor/law firm that represented Ronald during his marital dissolution proceeding objected to Ronald's attempt to protect his interest in the retirement plan from distribution to creditors. Following a hearing on the matter, the bankruptcy court determined that Ronald's interest in the retirement plan was property of the bankruptcy estate, and that it was not exempt under 11 U.S.C. § 522(d)(10)(E). The bankruptcy court allowed Ronald to claim the sum of $4,525.00 as exempt, which was the remaining amount available under the wildcard exemption set forth in 11 U.S.C. § 522(d)(5). Ronald timely appeals the bankruptcy court's ruling that his interest in the retirement plan is property of the bankruptcy estate. He does not take issue with the bankruptcy court's rulings with respect to the exemptions claimed under 11 U.S.C. §§ 522(d)(5) and 522(d)(10)(E).

Issue on Appeal

The sole issue on appeal is whether the bankruptcy court correctly ruled that the $71,089.00 lump sum payment due and owing Ronald as an alternate payee under his former spouse's ERISA-qualified retirement plan constitutes property of the bankruptcy estate. Ronald contends that the bankruptcy court erred in ruling that benefits payable to an alternate payee from an ERISA-qualified retirement plan are not excluded from the bankruptcy estate by operation of 11 U.S.C. § 541(c)(2). Ronald argues that although there is a clear distinction between a plan participant and an alternate payee, that distinction is irrelevant as to the protections afforded by ERISA section 206(d)(1), which requires that all qualified plans must prevent the assignment or alienation of benefits provided under the plan. Ronald argues that the purpose behind ERISA section 206(d)(1) is to protect the beneficial interest in an ERISA-qualified retirement plan, regardless of to whom that interest belongs, including an alternate payee who is considered a beneficiary pursuant to ERISA section 206(d)(3)(J). Ronald argues that because he is a beneficiary of the Northwest Airlines' ERISA-qualified retirement plan, and because his beneficial interest is subject to the anti-alienation provisions of ERISA, this situation falls under the protective umbrella of Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), and his interest in the retirement plan should be excluded from the bankruptcy estate.

Standard of Review

Because the parties do not dispute the factual issues in this case, and the only issue is whether the bankruptcy court correctly interpreted and applied the law, our review is de novo. See Anderson v. Seaver (In re Anderson), 269 B.R. 27, 29 (8th Cir. BAP 2001)(citing Andersen v. Ries (In re Andersen), 259 B.R. 687, 690 (8th Cir. BAP 2001); Abernathy v. LaBarge (In re Abernathy), 259 B.R. 330, 332 (8th Cir. BAP 2001)). "Whether property is included in the bankruptcy estate is a question of law." Drewes v. Vote (In re Vote), 276 F.3d 1024, 1026 (8th Cir.2002)(quoting Ramsay v. Dowden (In re Central Arkansas Broadcasting Co.), 68 F.3d 213, 214 (8th Cir.1995)).

Discussion

Property of the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "The scope of this section is very broad and includes property of all descriptions, tangible and intangible, as well as causes of action." Whetzal v. Alderson, 32 F.3d 1302, 1303 (8th Cir.1994) (citation omitted). However, pursuant to section 541(c)(2) of the Bankruptcy Code, property that is subject to restrictions on transfer by "applicable nonbankruptcy law" is excluded from property of the bankruptcy estate. 11 U.S.C. § 541(c)(2).² See also Whetzal, 32 F.3d at 1303.

In Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), the United States Supreme Court held that a debtor's interest in an ERISA-qualified retirement plan could be excluded from the bankruptcy estate pursuant to section 541(c)(2). In Whetzal, the Eighth Circuit observed that the Supreme Court had "relied on ERISA's requirement that approved plans include a provision `that benefits provided under the plan may not be assigned or alienated.'" Whetzal, 32 F.3d at 1303 (applying holding in Patterson v. Shumate to rule that a Chapter 7 debtor former federal employee's interest in a civil service retirement plan was not property of the bankruptcy estate). Ronald asks us to extend the holding in Patterson v. Shumate to the interest in an ERISA-qualified retirement plan that a debtor has acquired through a qualified domestic relations order pursuant to a marital dissolution proceeding.

The section of ERISA at issue here provides in pertinent part:

(d) Assignment or alienation of plan benefits

(1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

....

(3)(A) Paragraph (1) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that paragraph (1) shall not apply if the order is determined to be a qualified domestic relations order. Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.

(B) For purposes of this paragraph —

(i) the term "qualified domestic relations order" means a domestic relations order —

(I) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan ....

....

(J) A person who is an alternate payee under a qualified domestic relations order shall be considered for purposes of any provision of this chapter a beneficiary under the plan....

(K) The term "alternate payee" means any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.

29 U.S.C. § 1056(d) (1999). ERISA defines "beneficiary" as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. § 1002(8) (1999). Section 1056(d)(1) of ERISA imposes "an affirmative...