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In re Lerbakken

United States Bankruptcy Appellate Panel of the Eighth Circuit

October 16, 2018

In re: Brian A. Lerbakken Debtor.
v.
Sieloff and Associates, P.A. Interested Party - Appellee Brian A. Lerbakken Debtor - Appellant,

          Submitted: September 21, 2018

          Appeal from United States Bankruptcy Court for the District of Minnesota - Duluth

          Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.

          SHODEEN, BANKRUPTCY JUDGE

         The Debtor, Brian Lerbakken, appeals the bankruptcy court's[1] Order dated May 29, 2018 disallowing his claimed exemptions in a Wells Fargo 401K and an IRA account.

         BACKGROUND

         In September 2014 Lerbakken retained Sieloff & Associates, P. A. (Sieloff) to represent him in his divorce proceeding in Lake County, Minnesota. The state court's order dissolving the marriage adopted the parties' stipulated property settlement which awarded Lerbakken one-half of the value in his ex-wife's Wells Fargo 401K and an entire IRA account (Accounts). The order directed counsel to submit a Qualified Domestic Relations Order related to these assets. Based upon the available record, the briefing and representations of counsel this was not accomplished and Lerbakken has undertaken no other action to obtain title or possession of the accounts.

         Lerbakken filed a voluntary Chapter 7 petition on January 23, 2018. His Schedule C claimed the Accounts as exempt retirement funds for the values agreed to under the property settlement. Sieloff was listed as a creditor for its unpaid fees. It objected to Lebarkken's claim of exemption in the Accounts. The bankruptcy court disallowed the exemption on the basis that the Accounts were not retirement funds as defined by Clark v. Rameker, 134 S.Ct. 2242 (2014). This appeal followed.

         STANDARD OF REVIEW

         Whether Lerbakken is entitled to claim of an exemption in the Accounts presents a question of law which is subject to de novo review. Rucker v. Belew (In re Belew), 588 B.R, 875, 876 (B.A.P. 8th Cir. 2018).

         DISCUSSION

         As permitted, Lerbakken elected to use federal law in support of his claim of exemption in the identified Accounts. Whether a claim of exemption is proper begins with the relevant statutory authority which states: "Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986." 11 U.S.C. §522(d)(12)(2018).[2] Lerbakken contends that his interest in the Accounts satisfies this statutory definition because the proceeds are not taxable to his ex-wife and this status inures to his benefit.

         The parties supply extensive arguments related to the potential tax consequences, penalties and ERISA provisions applicable to the Accounts. Standing alone, these issues are not dispositive of their exempt status. 11 U.S.C. §522(d)(12) contains two requirements: (1) that the amount must be retirement funds; and (2) that the retirement funds must be in an account that is exempt from taxation under one of the provisions of the Internal Revenue Code set forth therein. Rice v. Allard (In re Rice), 478 B.R. 275, 280 (E.D. Mich. 2012). In order for the Accounts to be exempt both of these elements must be established.

         In Clark v. Rameker,134 S.Ct. 2242 (2014) the Supreme Court considered whether an inherited IRA qualified as a retirement fund for purposes of exemption under federal law. The Court's unanimous ...


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