Opinion
Case No. 12-54744
02-25-2013
In re: Lisa E. Banick, Debtor.
Chapter 7
Judge Caldwell
ORDER OVERRULING OBJECTION TO EXEMPTION (DOC. NO. 28)
This matter is before the Court on the Trustee's Objection to Exemption (Doc. No. 28) and Debtor's response (Doc. No. 31). The objection is based upon an interest Debtor may have in her ex-husband's retirement plans as a result of a domestic court decision which stated that the parties are to share equally in the ex-husband's retirement plans and ordered the ex-husband's attorney to draft qualified domestic relations orders ("QDROs") to divide the funds. After consideration of the arguments and filings of the parties, the Court will overrule the Trustee's objection. A brief discussion follows.
Debtor's ex-husband has two retirement plans which are the subject of this dispute: a Retirement Savings Plan from DuPont, and a Pension Plan from DuPont. Prior to the filing of this bankruptcy case, Debtor and her ex-husband were parties to a divorce proceeding in Fairfield County, Ohio. On June 14, 2011, the domestic court entered a decision which states in pertinent part: "...the parties shall equally share the Plaintiff's pension.... Plaintiff shall prepare a QDRO to divide the funds.... The parties shall equally share the Plaintiff's Retirement Savings Plan. Plaintiff's attorney shall prepare a QDRO dividing the funds." The QDROs referenced in the domestic court decision have not yet been drafted or entered. The Chapter 7 Trustee has not disputed Debtor's assertion that the plans involved are ERISA qualified, and Debtor has not disputed the Trustee's contention that Debtor may compel drafting of the QDROs.
Debtor filed her Chapter 7 petition on May 31, 2012. On Schedule B, Debtor listed "[a]warded interest in Ex-husbands retirement via QDRO, final amount not determined nor transferred to debtor... estimated value of interest stated." She estimated the value of the retirement funds to be $170,000.00. On Schedule C, Debtor claimed this entire amount as exempt pursuant to Ohio Rev. Code § 2329.66(a)(10)(b).
Though styled an objection to exemption, the parties' primary dispute is whether Debtor has an interest in the retirement plans, and if such an interest exists, whether that interest is property of the estate. The parties' arguments can be summarized as follows. The Chapter 7 Trustee asserts that (1) the domestic court decision granted Debtor an interest in property that is property of the estate pursuant to 11 U.S.C. § 541, (2) the interest is not exempt, and (3) the Trustee should be permitted to step into Debtor's shoes and request that the domestic court order the retirement plans' funds distributed to the Trustee. Debtor asserts that (1) the domestic court order did not grant Debtor an interest in the retirement plans, (2) any interest Debtor may have is not property of the estate by virtue of 11 U.S.C. § 541(c)(2), and (3) any interest that is property of the estate is exempt.
First, the Court finds that Debtor does not have any legal interest in her ex-husband's retirement plans. The language in each plan, in compliance with ERISA, specifically prohibits alienation except via a QDRO. A non-qualified domestic order is subject to the plans' anti-alienation provisions. 29 U.S.C. § 1056(d)(3)(A). The domestic court decision has not been deemed qualified, nor does it meet the requirements to be deemed qualified under 29 U.S.C. § 1056(d)(3)(B). By operation of law, the domestic court decision could not have granted Debtor a legal interest in either plan.
Though she has no legal interest, Debtor does have an equitable beneficial interest in each plan. Though 29 U.S.C. § 1056(d)(3)(B) bars the creation of a legal interest in the plans, Ohio courts have held that the entry of a domestic court order or divorce decree can create a beneficial or equitable interest in a retirement plan even though a QDRO has not yet been entered or qualified. See, e.g., McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192 (6th Cir. 1996) (divorce decree created separate ownership interest in debtor's pension, not a claim against the debtor); McGraw v. McGraw (In re McGraw), 176 B.R. 149 (Bankr. S.D. Ohio 1994); see also In re Hthiy, 283 B.R. 447 (Bankr. E.D. Mich. 2002) (divorce decree resulted in a separate property interest). Since the domestic court decision ordered the property divided, Debtor has an equitable interest in each plan.
Even though Debtor has an equitable interest in each plan, those interests are not property of the estate. As a general rule, all legal or equitable interests of the debtor in property as of the commencement of the case become property of the estate. 11 U.S.C. § 541(a)(1). However, 11 U.S.C. § 541(c)(2) excludes certain property from becoming property of the estate under section 541(a). The Sixth Circuit has adopted a three part test to determine if section 541(c)(2) prevents an interest of the debtor from becoming property of the estate: (i) the interest must be a beneficial interest in a trust; (ii) there must be a restriction on the transfer of the interest; and (iii) the restriction must be enforceable under applicable nonbankruptcy law. Taunt v. Gen. Ret. Sys. of Detroit (In re Wilcox), 233 F.3d 899, 904 (6th Cir. 2000); 11 U.S.C. § 541(c)(2). Debtor's equitable interests in the retirement plans satisfy these requirements.
Retirement plans such as those held by Debtor's ex-husband are considered trusts under Ohio law. Rhiel v. OhioHealth Corp. (In re Hunter), 380 B.R. 753, 767 (Bankr. S.D. Ohio 2008). By virtue of the domestic court decision, Debtor has an equitable beneficial interest in each of those trusts. The Retirement Savings Plan and the Pension Plan are ERISA qualified and contain the anti-alienation provisions required by 29 U.S.C. § 1056(d)(1). Id. at 768. Those anti-alienation provisions qualify as a "restriction enforceable under applicable nonbankruptcy law." Patterson v. Shumate, 504 U.S. 753 (1992). Consequently, this restriction prevents the Debtor's interests in the plans from becoming property of the estate under section 541(c)(2).
Since the Court concludes that Debtor's interests in her ex-husband's retirement plans are not property of the estate, it need not address the applicability of Debtor's claim of exemption pursuant to Ohio Rev. Code § 2329.66(A)(10)(b). Based upon the above findings of fact and conclusions of law, the objection is OVERRULLED.
IT IS SO ORDERED. Copies to:
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