Schwartzman v. Wilshinsky
| Decision Date | 30 October 1996 |
| Docket Number | No. B097347,B097347 |
| Citation | 50 Cal.App.4th 619,57 Cal.Rptr.2d 790 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 96 Cal. Daily Op. Serv. 7995, 96 Daily Journal D.A.R. 13,185 Blake SCHWARTZMAN, et al., Plaintiffs and Respondents, v. Stephen WILSHINSKY, et al., Defendants and Appellants. |
Glassman, Browning & Saltsman, Steven Berkowitz and Lori Nielsen, Beverly Hills, for Plaintiffs and Respondents.
This is an appeal from an order made after judgment, by which the court below denied appellant's claim of exemption as to all funds held in his IRA, except an amount determined to be required for the payment of taxes, and as to all employee contributions and matching employer contributions held in the 401K profit-sharing account established by appellant's employer. 1 Appellant seeks reversal on the grounds that the trial court's decision is not supported by substantial evidence and that the court erred in interpreting the terms "self-employment plan" and "individual retirement account" in Code of Civil Procedure section 704.115, subdivision (a)(3). The court held that the statute included employee contributions, and that federal law prohibits execution upon ERISA-qualified retirement plans such as the profit-sharing plan in this case.
For the reasons set out below, we affirm the judgment as it relates to appellant's IRA, and reverse as it relates to the employer's profit-sharing plan. We do not need to reach or discuss the ERISA issue.
Judgment was entered against appellant, Stephen Wilshinsky, on September 27, 1994 in the sum of $1,750,000 in favor of respondents, Blake Schwartzman and James Hartman. Respondents proceeded to enforce the judgment, and obtained a turnover order requiring In his declaration, appellant states that the attached IRA statement is a true and correct copy of the original, that he created the IRA account before his current employment with Sutro & Co., transferred it to his present employer, and has not made contributions to it since. He further states that the 401K statement is a true and correct copy of the original, that the plan summary was prepared by his employer, and the enrollment forms are copies of the papers by which the account was opened. In lieu of a detailed, verified financial statement described in Code of Civil Procedure section 703.530, appellant provided a summary in his declaration of his usual earnings, the amount of child or spousal support (not specified) paid, and the number, ages, and names of his dependents. The attached balance sheet shows a superficial summary of assets and liabilities.
appellant to deliver to respondents his IRA account and 401K account. On June 27, 1995, appellant filed a claim of exemption pursuant to Code of Civil Procedure section 704.115. The claim of exemption was supported by appellant's memorandum of points and authorities, his declaration, and the declaration of his attorney. Attached to appellant's declaration was a copy of two account statements, one regarding the IRA and one regarding the 401K, as well as a copy of the 401K plan summary, and appellant's enrollment forms. Also attached was a one-page balance sheet.
The 401K plan summary is entitled, "Summary Plan Description for the Profit-Sharing Retirement Plan and Trust Agreement for Employees of Sutro & Co. Incorporated." In it, the plan is described as
Respondents did not make any evidentiary objections in the course of opposing appellant's claim of exemption and have submitted portions of the transcript of his judgment debtor's examination. In it, appellant testified that he lives in a rented three-bedroom condominium for which he pays $1,100 per month, while his wife and three children live in the family home. His wife has not been employed outside the home since 1983, and appellant pays her support of $15,000 per month. In addition to the first mortgage on his home of $500,000, there is a $121,000 loan for earthquake repairs. Appellant has paid between $30,000 and $40,000 for repairs out of his own pocket since March or April 1995, and there remains $50,000 to $60,000 worth of repairs left to do. Appellant leases a 1995 Cadillac for $559.67 per month, and obtained a loan of $25,000 in 1994 to pay his children's tuition, which is $18,000. Appellant has been employed by Sutro & Co. since September 1993 as a senior vice-president, and in 1994, he earned $475,956. On an unspecified date, appellant withdrew $40,000 from his children's trust on the advice of counsel, to pay bills. There remain $50,000 or $60,000. On approximately March 28, 1995, appellant had $66,224 in an unspecified account, and on an unspecified date, he received a refund on his 1993 taxes. In March 1995, appellant received a tax refund of $27,000, which went to pay bills, and the remainder was gifted to his children's trust. There is some testimony about $25,000 and whether its receipt was reported to appellant's partners, but it is too fragmented to comprehend. Appellant paid $120,000 in legal fees in 1994, and made charitable gifts of $21,411. 2
Respondents also submitted two declarations of their attorney, in which he summarizes portions of the debtor's examination testimony and the contents of the judgment, states that appellant has not paid any portion of the judgment, and that appellant's wife testified in her examination that $100,000 was deposited in the children's trust (although no date was given). He concludes with his opinion that "[e]very attempt has been made by [appellant] to shield or conceal his money and assets from the collection efforts of judgment creditors." Appellant On August 15, 1995, the trial court denied appellant's claim of exemption in its entirety as to the IRA account, and ordered that $1,500 of it be turned over, leaving the remainder for payment of taxes. As to the 401K, the court found that it was a "hybrid" account, part 401K and part profit-sharing plan (without explaining the distinction or its relevance), and held that only the employer's profit-sharing contributions were exempt. The court ordered the parties to determine how much was the result of 401K contributions, whether by appellant or his employer, and for appellant to turn over 60 percent of that sum, retaining the remainder for taxes. On September 28, 1995, appellant filed a motion for reconsideration, along with a copy of the full "Profit-Sharing Retirement Plan and Trust Agreement for Employees of Sutro & Co. Incorporated." The motion was never heard, and the notice of appeal was filed on October 13, 1995.
made no evidentiary objections to this submission.
Appellant recognizes that under Code of Civil Procedure section 704.115, subdivision (e), an IRA is exempt only to the extent necessary to provide for the support of the judgment debtor and his dependents when the judgment debtor retires, taking into account all resources that are likely to be available at the time of retirement. 3 Appellant argues that it is unlikely that he will have any other resources available for retirement, as he can never hope to pay even the interest on a $1,750,000 judgment, and have any sum left over for retirement. He argues that, because of the size of the judgment, even if he did replenish his IRA, the replenished amount would also be subject to seizure, so he would never have retirement funds.
Appellant contends that the 401K plan is entirely exempt from execution, as it falls within the definition of "private retirement plan" of subdivision (a)(1) and (a)(2) of Code of Civil Procedure section 704.115, and is therefore not an IRA or self-employment plan subject to the "extent necessary" limitation of subdivision (a)(3). 4 Appellant argues that the trial court erred in finding that the 401K was a "hybrid" simply because there were employee contributions to the plan. Appellant also urges the application of federal law which exempts ERISA qualified plans from execution or inclusion in a bankruptcy estate.
Respondents contend that the court's determination that the IRA was not necessary to provide for appellant and his dependents was supported by substantial evidence, pointing out, among other facts, that appellant was 40 years old at the time of the hearing, had been a stockbroker since 1978, had earned $476,000 in 1994, had substantial assets, and maintains a "high style of living."
Respondents support the trial court's refusal to exempt employee contributions and matching employer contributions to the 401K with an analogy to bankruptcy cases decided in relation to whether voluntary employee contributions to a plan or trust are property of the bankruptcy estate. Respondents argue that the 401K plan is not "designed and used for retirement purposes," which is a prerequisite to exemption under Code of Civil Procedure section 704.115, subdivision (a)(1), because the control which appellant exercised over the plan showed a purpose to shield his assets in order to defraud creditors, not to use them for retirement. Finally, respondents argue
that federal law exempting ERISA plans should not be considered, because appellant has raised it for the first time on appeal, and as the full plan document was not before the court (except in the motion to reconsider, which was not heard), appellant's contention is not supported by substantial evidence.
Orders granting or denying a claim of exemption are appealable. (Code Civ.Proc., § 703.600.) A...
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