How To Get A Garnisment On An Inerited Ir

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1 Valdivia v. Valdivia, %13 SO.2c Page So.2d Fla. L. Weekly D514 Isabel VALDIVIA, Appellant, v. Ester Fajardo VALDIVIA, Appellee. No District Court of Appeal of Florida, Tird District. Feb. 18, Page 1191 Raquel Puig Zaldivar; Nancy Scleifer, for appellant. Lucrecia Granda, for appellee. Before NESBITT, FERGUSON and GERSTEN, n. PER CURIAM. Appellant Isabel Valdivia, te ex-wife of decedent, Jose Valdivia, M.D., claims te remainder of er lump sum alimony against is estate. Se argues tat te only substantial asset owned by te doctor from te time of te couple's 1985 divorce until te doctor's deat in 1990 was is successful medical practice, Belo Medical Center, and tat tis asset was fraudulently conveyed to defeat er claim. Finding appellant ad failed to state a cause of action for fraudulent conveyance, te trial court denied er petition to void te conveyance and denied er motion to declare te Center part of te estate. We reverse upon te following analysis. Appellant's petition alleged tat at te time of te dissolution of te couple's long-term marriage, te trial judge made a finding tat during te marriage te doctor ad developed te Center and ad been 100% owner of all Center stock until six years earlier wen e transferred 25% of te stock to is friend Ester Fajardo. Te court found tat te Center provided te doctor wit income in excess of $150,000 per year. In its final judgment granting dissolution, te court awarded te remaining tastcase 75% interest in te Center to te doctor and awarded appellant lump sum alimony of $250,000 to be paid out in montly installments. Te order provided: g. Te above awards of lump sum alimony sall constitute a claim against te Estate of te Husband Te parties sall fortwit execute any and all documents and take suc oter actions as may be necessary to accomplis and comply wit te terms of tis final judgment. In June 1987, two and one-alf years after te divorce decree, and two weeks prior to is marriage to Fajardo, te doctor transferred is interest in te Center to imself and Fajardo, as joint tenants wit rigt of survivorsip. In April 1990, several weeks before te doctor's deat, Fajardo Valdivia, executed a transfer of te 75% stock interest to erself individually. After te doctor's deat, wen appellant filed a petition for administration, se alleged tat $133, of te lump sum alimony awarded er remained unpaid. Se furter alleged tat at te time of te transfer to joint tenancy, te doctor was aware of appellant's judgment against im, tat te Center was is only significant asset, and tat te transfer, ifupeld, would result in removing tat asset from is estate, tereby leaving insuffcient assets for appellant to collect er judgment. Se alleged tat Fajardo Valdivia, aware tat er spouse owed a large debt to appellant, ten executed te second transfer as bot te Center's president and secretary altoug se was not

2 Va!t1lvia v. Vêddivia, president. Appellant alleged tat te transfers ad taken place in secret and for no consideration, and tat te doctor, up to te time of is deat, ad continued to control te property. We conclude tat te appellant sould ave been permtted to prosecute er petition Page 1192 to void te conveyance as fraudulent. Se submitted evidence tat te lump sum alimony award, wile to be paid in periodic installments, constituted a claim against te estate and tat te parties were ordered to act in accordance wit tat decision. Furter, Fajardo Valdivia's memoranda to te cour in response to te instant petition, admitted tat te property was transferred "to take it from te estate." Te law is clear tat a debtor may not transfer property owned by imself, individually, to imself and is wife as tenants by te entireties if suc a transfer wil defraud creditors by putting tat property beyond te creditors' reac. Wetstone v. Coslick, 117 Fla. 203, 157 So. 666 (1934); Ferre v. City Nat'l Bank, 548 SO.2d 701 (Fla. 3d DCA 1989); see Money v. Powell, 139 So.2d 702 (Fla. 2d DCA 1962). Appellant's petition to void te transaction suffciently alleged a valid cause of action for fraudulent transfer. Terefore, appellant sould ave been permtted to go forward wit er claim. \ Accordingly, we reverse te trial court's order and remand te case to permt appellant to prosecute er petition to void te conveyance. A lastcase

3 Robertson v. Deeb, 16 SO.3d 936 (Fla. App., 2009) 16 So.3d 936 Ricard A. ROBERTSON, Appellant, v. Kevin J. DEEB and RBC Wealt Management, a Division of RBC Capital Markets Corporation, Appellees. No. 2D District Court of Appeal of Florida, Second District. August 14,2009. (16 So.3d937) James A. Byrne, St. Petersburg, for Appellant. Teresa A. Deeb of Deeb & Durkin, P.A., St. Petersburg, for Appellee Kevin J. Deeb. No appearance for Appellee RBC Wealt Management. SILBERMAN, Judge. Ricard A. Robertson appeals an order denying is claim of exemption from garnisment wit respect to an inerited IR. We affrm based on our determination tat inerited IRAs are not entitled to te exemption set fort in section (2)(a), Florida Statutes (2008), because tat section is limited to te original "fund or account." Kevin J. Deeb sued Robertson on a promissory note and obtained a judgment against im in excess of $188,000. Deeb tereafter obtained and served a writ of garnisment to RBC Wealt Management, a division of RBC Capital Markets Corporation. In response, RBC identified an account titled "Ricard A(.J Robertson Beneficiary, Harold Robertson Decedent RBC Capital Markets Custodial IR" tat contained $75,372 in cas and securities. Robertson fied a claim of exemption and argued tat te IRA, wic e ad inerited from is fater, was exempt from garnisment pursuant to section (2)(a). At te earing on Robertson's claim of exemption, Robertson relied on a letter and a fact seet from RBC informing Robertson of is rigts to is fater's IR as a beneficiary. Te. fact seet stated tat, upon is fater's deat, 4 fastcase Robertson ad two options. His first option was transferring te account into an inerited IR, wic would require im to accept annual minimum distributions but allow im to take discretionary payouts witout penalty. His second option was accepting distributions pursuant to te "five year deat rule," wic would allow im to take discretionary payouts from is fater's account as long as e exausted te funds witin five years of is fater's deat. Robertson elected to transfer te account into an inerited IRA. 1 Section 222.2l(2)(a) renders "money or oter assets payable to an owner, a participant or a beneficiary" exempt from garnisment if it is in a fund or account tat is (16 So.3d 938J maintained as an IR pursuant to a plan or governing instrument tat is exempt from taxation under certain provisions of te Internal Revenue Code. Te trial court found tat section (2)(a) does not apply to an inerited IR and denied te claim of exemption. Té court reasoned tat at te time of is fater's deat, te account became Robertson's propert and no longer qualified for te same exemptions from taxation. Te court concluded, "It is not an IR. It is not like an IR in terms of taxing and penalty for early witdrawal and tings of tat nature, so I don't tink tat's wat (te legislature J meant." On appeal, Robertson argues tat te court erred in determining tat section 222.2l(2)(a) does not apply because e is a "beneficiary" of te "fund or account" tat qualified as an IR wen is fater was alive. Deeb argues tat te - 1 -

4 Robertson v. Deeb, 16 SO.3d 936 (Fla. App" 2009) trial court's ruling sould be affirmed because IRAs lose teir tax exempt status under section (2)(a) upon te deat of te original owner. We review tis question of law regarding te interpretation of section 222.2l(2)(a) de novo. See BellSout Telecomms., Inc. v. Meeks, 863 SO.2d 287, 289 (Fla.2003). We conclude tat section 222.2l(2)(a) does not apply to inerited IRs because te plain language of tat section references only te original "fund or account" and te tax consequences of inerited IRAs render tem completely separate funds or accounts. Te applicable portion of section (2)(a) provides as follows: (2)(a) Except as provided in paragrap (d), any money or oter assets payable to an owner, a participant, or a beneficiary from, or any interest of any owner, participant, or beneficiary in, a fund or account is exempt from all claims of creditors of te owner, beneficiary, or participant ifte fund or account is: 1. Maintained in accordance wit a master plan, volume submitter plan, prototype plan, or any oter plan or governing instrument tat as been preapproved by te Internal Revenue Service as exempt from taxation under s. 40l(a), s. 403(a), s. 403(b), s. 408, s. 408A, s. 409, s. 414, s. 457(b), or s. 50l(a) of te Internal Revenue Code of 1986, as amended, unless it as been subsequently determined tat te plan or governing instrument is not exempt from taxation in a proceeding tat as become final and nonappealable; 2. Maintained in accordance wit a plan or governing instrument tat as been determined by te Internal Revenue Service to be exempt from taxation under s. 401(a), s. 403(a), s. 403(b), s. 408, s. 408A, s. 409, s. 414, s. 457(b), or s. 50l(a) of te Internal Revenue Code of 1986, as amended, unless it as been subsequently determined tat te plan or governing instrument is not exempt from taxation in a proceeding tat as become final and nonappealable; rastcase (Empasis added and footnotes omitted.) Tus, te plain language of section 222.2l(2)(a) reflects te legislature's intent to exempt a "fund or account" tat is maintained as an IR in accordance wit a plan or governing instrument tat is exempt from taxation under certain provisions of te Code. Wile section (2)(a) pr~vides for exemption from "all claims of creditors of te...beneficiary," it does not exempt te money or. assets at issue unless tey are maintained in one particular "fund or account." Tus, te plain language of section (2)(a) does not exempt inerited IRs, suc as te one Robertson establised in tis case, wic are separate funds or accounts. tat are created wen te original fund or account (16 So.3d 939J passes to a beneficiary upon te deat of te participant. Furtermore, te "fund or account" tat is exempt from garnisment under section (2)(a) is identified by its tax exempt status. However, wen IRs are distributed upon te deat of te owner. and become inerited IRs teir tax exempt status canges dramatically. IRs are generally exempt from income taxes until distributions are taken, and owners may roll over IRAs witout incurring any tax penalties. LR.C. 408(d)(1), (d)(3), (e) (2007). Furtermore, IR owners are not required to take distributions, and tey incur a ten percent penalty for early witdrawal. LR.C. 72(q) (2008), 408(d)(1). Wile inerited IRs are also exempt from income taxes until distributions are taken, beneficiaries of inerited IRAs are required to take distributions wic are exempt from te early witdrawal penalty. LR.C. 72(q)(2)(B); 40 1 (a)(9) (2008); 408(a)(6), (d)(1). Additionally, iilerited IRs are not entitled to rollover treatment. See LR.C. 408(d)(1), (d)(3)(c). Tus, te tax exempt status of inerited IRs is inconsistent wit tat of original IRs. Tis inconsistency as been recognized by a number of federal bankruptcy courts tat ave concluded tat inerited IRs are not exempt - 2-

5 Robertson v. Deeb, 16 SO.3d 936 (Fla. App., 2009) from creditors under similar statutory scemes. See In re Taylor, No , 2006 WL , at *2 (Bankr.C.D.Ill. May 9, 2006) (not reported in B.R.); In re Kircen, 34,4 B.R. 908 (Bankr.E.D.Wis.2006); In re Greenfield, 28,9 B.R. 146 (Bankr.S.D.Cal.2003); In re Sims, 24,1 B.R. 467 (Bankr. N.D.Okla.1999). In Sims, for example, a beneficiary wo ad inerited an IRA fied for protection under Capter 7 of te United States Bankruptcy Code in bankruptcy court. 241 B.R. at 468. Te beneficiary claimed is inerited IR was exempt, and te trustee and a creditor objected. Te bankruptcy court interpreted an exemption provision in te Oklaoma statutes tat exempted "any interest in a retirement plan or arrangement qualified for tax exemption purposes under present or future Acts of Congress... only to te extent tat contributions by or on bealf of a participant were not subject to federal income taxation to suc participant at te time of suc contributions." Id. at n. 2. Te bankruptcy court concluded tat te beneficiary's interest in te IRA did not qualify for exemption under tat statute because te original IR's tax exempt caracter canged completely wen it became classified as an inerited IR. Id. at 470. Te court explained tat, unlike original IRAs, inerited IRs are not veicles to defer taxation on income in order to preserve money for retirement. Instead, inerited IRAs are liquid assets tat te beneficiary may access at any time witout penalty and tat te beneficiary must take as income witout regard to retirement needs. Id. Te court concluded, "Te purpose of te... Legislature in exempting individual retirement accounts is to allow debtors to preserve assets wic ave been earmarked for retirement in te ordinary course of te debtor's affairs. Suc a purpose would not be served by upolding (te beneficiary'sj request to keep is interest in te IR as exempt." Id. at 471. We find tis reasoning persuasive and equally applicable to section (2)(a). Because te plain language of section (2)(a) references only te original. "fund or account" and te tax consequences of fastcase inerited IRAs like te one in tis case render tem a completely separate "fund or account," suc inerited IRAs are not exempt under tat section. Accordingly, we affirm te order denying (16 So.3d 940J Robertson's claim of exemption from garnisment in tis case. Notes: Affirmed. DAVIS and WALLACE, n., Concur. 1. Because Robertson cose to transfer is fater's account. into an inerited IR, our opinion today deals solely wit te applicability of section (2)(a) to tis type of IR account. Any reference we make in our opinion to an "inerited IR" is meant to refer to te type. of account created by Robertson in tis case