In re Rousey

• Decision Date: 13 February 2002
• Docket Number: No. 3:01-BK-13241.,3:01-BK-13241.
• Citation: 275 B.R. 307
• Parties: In re Richard Gerald ROUSEY and Betty Jo Rousey, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

275 B.R. 307

In re Richard Gerald ROUSEY and Betty Jo Rousey, Debtors.

No. 3:01-BK-13241.

United States Bankruptcy Court, W.D. Arkansas, Harrison Division.

February 13, 2002.

Claude Jones, Harrison, AR, for Richard and Betty Jo Rousey.

Colli C. McKiever, Fayetteville, AR, for trustee Jill R. Jacoway.

Jill R. Jacoway, Fayetteville, AR, trustee.

Order Sustaining Trustee's Objection to Exemptions and Granting Motion for Turnover

ROBERT F. FUSSELL, Bankruptcy Judge.

Pending before the Court is the "Objection to Claim of Exemptions and Motion for Turnover" filed by Jill Jacoway, the chapter 7 trustee (the "Trustee"), on August 3, 2001. The Court conducted an evidentiary hearing on the objection to exemptions and motion for turnover on October 24, 2001. For the reasons stated below, the Trustee's objection to exemptions is sustained and her motion for turnover is granted.

I. Jurisdiction.

This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B) and (E). The following order constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052(a).

II. Findings of Fact.

Richard Gerald Rousey and Betty Jo Rousey ("Debtors") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on April 27, 2001. Debtors' Schedule B, "Personal Property," lists Debtors' interests in two IRAs at the First National Bank in Berryville, Arkansas, specifically, IRA CERT # 208221 in the name of Richard Gerald Rousey, and IRA CERT # 208345 in the name of Betty Jo Rousey (collectively the "IRAs").

On Debtors' Schedule C, "Property Claimed as Exempt," Debtors claimed the following exemptions of the IRAs:

                ------------------------------------------------------------------------------------------------
                                                                                              Current Market
                                                                              Value of     Value of Property
                      Description of              Specify Law Providing   Claimed      Without Deducting
                        Property                      Each Exemption      Exemption       Exemption
                ------------------------------------------------------------------------------------------------
                    IRA CERT # 208221 First       11 U.S.C. § 522(d)(5)       5,033.00       42,915.32
                  National Bank, Berryville, AR.  11 U.S.C. § 522(d)(10)(E)  37,882.32
                ------------------------------------------------------------------------------------------------
                    IRA CERT # 208345 First       11 U.S.C. § 522(d)(5)       5,648.00       12,118.16
                  National Bank, Berryville, AR   11 U.S.C. § 522(d)(10)(E)   6,470.16
                -------------------------------------------------------------------------------------------------
                

On August 3, 2001, the Trustee filed an objection to exemptions and motion for turnover, and argued that Debtors are not entitled to claim exemptions of the IRAs pursuant to 11 U.S.C. § 522(d)(10)(E) in the total amount of $44,352.48. The Trustee does not object to Debtors' claimed exemptions in the total amount of $10,681.00 pursuant to 11 U.S.C. § 522(d)(5).

On October 24, 2001, the Court conducted an evidentiary hearing on the Trustee's objection to exemptions and motion for turnover. At the hearing, the parties stipulated to the amounts and account numbers of the IRAs, as set forth above. The Court heard the testimony of Debtors, who each testified that it is their understanding that they can withdraw money from the IRAs at any time, subject to a 10% tax penalty. At the conclusion of the hearing, upon the request of the parties, the Court continued the matter to allow for additional discovery and the introduction of additional evidence as to the extent to which the IRAs are reasonably necessary for the support of Debtors. In addition, the Court informed the parties that it would rule in the interim on the issue of whether Debtors' ability to withdraw money from the IRAs at any time renders 11 U.S.C. § 522(d)(10)(E) inapplicable to this case as a matter of law.

On December 21, 2001, the parties filed a joint stipulation, admitting into evidence copies of the IRA custodial account agreements pertaining to the IRAs. The two account agreements are identical, and, with regard to distribution, provide as follows:

1. Notwithstanding any provision of this agreement to the contrary, the distribution of the Depositor's interest in the custodial account shall be made in accordance with the following requirements and shall otherwise comply with section 408(a)(6) and Proposed Regulations section 1.401(a)(9) 2, the provisions of which are incorporated by reference.

2. Unless otherwise elected by the time distributions are required to begin to the Depositor under paragraph 3, or to the surviving spouse under paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Depositor and the surviving spouse and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated.

3. The Depositor's entire interest in the custodial account must be, or begin to be, distributed by the Depositor's required beginning date, (April 1 following the calendar year end in which the Depositor reaches age 70 1/2). By that date, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in:

(a) A single sum payment.

(b) An annuity contract that provides equal or substantial equal monthly, quarterly, or annual payments over the life of the Depositor.

(c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Depositor and his or her designated beneficiary.

(d) Equal or substantially equal annual payments over a specified period that may not be longer than the Depositor's life expectancy.

(e) Equal or substantially equal annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Depositor and his or her designated beneficiary.

4. If the Depositor dies before his or her entire interest is distributed to him or her, the entire remaining interest will be distributed as follows:

(a) If the Depositor dies on or after distribution of his or her interest has begun, distribution must continue to be made in accordance with paragraph 3.

(b) If the Depositor dies before distribution of his or her interest has begun, the entire remaining interest will, at the election of the Depositor, or if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either

(i) Be distributed by the December 31 of the year containing the fifth anniversary of the Depositor's death, or

(ii) Be distributed in equal or substantially equal payments over the life or life expectancy of the designated beneficiary or beneficiaries starting by December 31 of the year following the year of the Depositor's death. If, however, the beneficiary is the Depositor's surviving spouse, then this distribution is not required to begin before December 31 of the year in which the Depositor would have turned 70½.

(c) Except where distribution in the form of an annuity meeting the requirements of section 408(b)(3) and its related regulations has irrevocably commenced, distributions are treated as having begun on the Depositor's required beginning date, even though payments may actually have been made before that date.

(d) If the depositor dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional case contributions or rollover contributions may be accepted in the account.

Both IRA agreements included an IRA Disclosure Statement, which states the following regarding withdrawals:

10. Federal Penalties. In addition to the taxes imposed on IRAs, distributions from IRAs are also potentially subject to a wide variety of penalties (excise taxes).

A. Penalty for Premature Distribution. Generally, if you take a distribution from your IRA before you reach the age 59 1/2 , you will owe, in addition to regular income taxes, a 10% excise tax on the taxable amount of the distribution. Exceptions to the 10% excise tax in the case of disability, death, a first home, qualified higher education expenses, distribution for health care expenses exceeding 7.5% of your adjusted gross income, distributions used to pay for health care insurance if you are unemployed, or if you agree to take a series of substantially equal periodic payments made over your life expectancy or the joint life expectancy of yourself and your designated beneficiary.

Based on the language of the IRA agreements, the Court finds that Debtors have an immediate right to withdraw the funds in the IRAs. The only impediment to the Debtors' right to withdraw is the 10% excise tax penalty referenced in the IRA Disclosure Statement.

III. Conclusions of Law.

The Trustee does not dispute that Debtors are entitled to exempt $10,681.00 of the IRAs pursuant to 11 U.S.C. § 522(d)(5). The only issue before the Court is whether Debtors are entitled to exempt the remaining $44,352.48 of the IRAs pursuant to 11 U.S.C. § 522(d)(10)(E), which provides:

(d) The following property may be exempted under subsection (b)(1) of this section:

(10) The debtor's right to receive —

(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless —

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose;

(ii) such payment is on account of age or length of service; and

(iii) such plan or contract does not qualify under

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