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If you’re in California, you may be able to protect your retirement funds from creditors.  That can be great news for retirees with money problems.
Most people have a combination of retirement accounts, often representing different phases of their working lives.
You’ve got the employer-held retirement plans, those established on your own, and the accounts that roll over from place to place as the years go by.
Each on is treated differently than the others under California law. Best way to figure out how much you can protect is to look at each in kind.
Protecting Private Retirement Plans From Creditors
Under California Code of Civil Procedure § 704.115, assets held in private retirement plans are fully exempt from execution, both before and after distribution to the judgment debtor.
In fact, the law states that:

all amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.

That means the money in your private retirement plan is safe from creditors even after you withdraw the money and put it into your bank account.
Creditors don’t always know the source of your funds, though. For that reason, you should use a separate bank account for your retirement distributions. This way you can provide proof of the source of all funds in the event that a creditor tries to grab the money.
See also: Protecting Retirement Accounts In Bankruptcy
Individual Retirement Accounts Offer Fewer Protections
California law doesn’t offer the same protection to individual retirement accounts (IRA’s).
These accounts are protected only to the extent “necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires.”
Deciding whether an IRA is protected isn’t always so simple.  Whether an IRA account is considered “necessary” under the law is based on the answers to two questions:

• Is there a present need for the funds?
• Can the IRA holder replace the funds if the IRA is forfeited to a creditor?

Personally, I’m not a fan of IRA’s for this reason. You’re going to need to justify your claim that the account is protected, and the creditor is going to argue the other way.  In the end, it turns into an expensive battle in court.
How About Rollover Accounts?
California courts have held that funds traceable from a fully exempt pension plan into an IRA with an otherwise limited exemption are fully exempt

Read the decision:  McMullen v. Haycock
In other words, though the funds in the IRA would normally be protected only to a limited extent, the fact that they originated in a fully-protected pension plan served to save the full amount in the IRA.
Retirees Can Breathe Easier
If you’re retired and looking at judgments from creditors, at least your retirement funds are safe and secure.
That protection may be far more expansive than what’s offered to other types of property, but for many it’s enough to make the prospect of a judgment far less worrisome.

Are you experiencing financial hardship, but uncertain if you would qualify to file for bankruptcy relief based on your income?  We can help!  Below is some general information regarding the types of bankruptcy relief and how income is considered for filing.  To get a free evaluation of your circumstances, call our office at 866-261-8282 for [...]The post What Income is Eligible to Qualify for Filing Bankruptcy in Michigan? appeared first on Acclaim Legal Services, PLLC.

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