creditor protection California | Ed Slott and Company, LLC

creditor protection California

In the past there was limited creditor protection in California. I read where there was an appeals court case in California where traceable funds from a pension plan were ruled to be exempt from creditors. McMullen v. Haycock Cal.Rptr.3d, 2007 WL 447913, Cal.App 2 Dist, 2/13/2007 (No. B187748). Should we now start rolling 401(k)s into separate IRAs (from contributory) in California? Many thanks ... Mary

This appears to be a case where the bankruptcy court granted unlimited protection in the case of a qualified plan IRA rollover under CA tracing provisions. However, the CA civil statutes were not changed to reflect this ruling and therefore if a creditor goes after your rollover IRA in CA, you might have to secure your own court decision. Therefore, I would not depend on it, particularly if you have creditor exposure. In addition, authoritative asset protection publications (Adkisson, Riser) do not cite this court decision and still consider IRA accounts in CA to only be protected up to the amount required to sustain a basic life style. This can result in as little as 100,000 being preserved outside of the federal bankruptcy Act protection which requires a BK filing.

Does anyone know if anything has changed in California to allow for full creditor protection when rolling over qualified plan assets to a rollover IRA, while maintaining and tracing those assets separately? 

  • Nothing has changed that I am aware of. This link has an internal link to a 2007 court decision under which rollover IRAs in CA were considered to be exempt from creditors without limit.
  • Therefore, as you indicated, it is best not to commingle your rollover IRA money with IRA accounts funded by regular IRA contributions that do not receive such creditor protection. IRA accounts that are not rollover IRAs are only protected up to basic amounts to sustain basic family support, usually less than 150k.

Oher than that one case from 2007, do you know of any other legal authority that will provide creditor protection in California for IRA Rollover assets??  Thank you!! 

No. And some asset protection analysts sites are apparently not comfortable with this one court case and are still showing that IRAs in CA are only protected up to the arbitrary amount a court thinks is needed to support basic living costs as indicated above. This entire subject is loaded with pitfalls and exceptions, so while this case is positive, you certainly cannot rely on it 100%.


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