Several courts have sustained a debtor’s exemption of retirement fund proceeds deposited in a financial account even though the applicable exemption statute does not state that retirement proceeds are exempt after money is withdrawn from the debtor’s retirement plan. The annuity exemption statute specifically exempts annuities. Courts have read into the retirement fund exemption an protection of proceeds paid. One would expect that at some point in time money withdrawn from retirement and deposited for other use would eventually lose protection. Eventually, the exempt character of retirement distributions deposited or invested should transform to the debtor’s non-exempt assets. A recent bankruptcy case considered a debtor who withdrew retirement money in 2004, deposited the money in a financial account, and then in 2007 wrote a check from the same financial account payable to his attorney’s trust account for legal work to be performed on the debtor’s behalf. The bankruptcy trustee claimed that the money held on the debtor’s behalf in the trust account could not be exempt under the Florida Statute protecting retirement money.
The bankruptcy court held that the money in the attorney’s trust account was exempt under the retirement exemption statute. Even after four years, the debtor’s ability to trace the trust account money to withdrawals from a retirement account preserved his exemption. The court said that, “the circuitous, but traceable journal the Retirement Assets have taken over the past three years does not destroy their exempt status.” The case is , In re Davis, 2009 WL 1080019, Case No 8:08-4348. This decision included an interesting discussion of homestead exemption which I will report in a subsequent blog post.