CPLR Sec. 5205 lists personal property that is exempt from being seized or levied upon in order to satisfy a money judgment. In a bankruptcy proceeding in New York the property listed in CPLR Sec. 5205 may be excluded from the bankruptcy estate. Thus the assets listed in the statute are exempt from claims of creditors both in a bankruptcy proceeding and in a garnishment or other collection action outside of a bankruptcy case.

The statute begins by exempting from creditors' claims personal property such as the debtor's clothing, books, and certain household furniture and appliances. Although the statute exempts property held in trust for the judgment debtor where the trust has been created by or the fund originated from a person other than the judgment debtor, prior to 1987 no specific provision was made for any type of retirement plan. The 1987 amendments to the statute provide that Keogh plans and retirement plans established by a corporation (which qualify under IRC Sec. 401) are personal property exempt from being applied to satisfy a money judgment. The 1987 amendment also states that these retirement plans are exempt even though the judgment debtor is serf employed, is a partner of the entity sponsoring the Keogh plan, or is a shareholder of the corporation sponsoring the retirement plan.

In 1989, CPLR Sec. 5205 was amended twice. The first 1989 amendment to the statute provides that the retirement plans described in the statute are conclusively presumed to be spendthrift trusts under the common law of the State of New York for all purposes including bankruptcy proceedings. The amendment also states that 100% of the income or other payments from retirement plans described in the statute are also exempt assets. The statute was amended a second time in 1989 to provide that rollovers created from retirement plans described in the statute are also protected as exempt assets.

The 1994 amendment to CPLR Sec. 5205 is significant because non-rollover IRAs are given protection from creditors for the first time. Since prior to this latest amendment the statute only exempted those IRAs created as a result of rollovers from Keogh plans or other plans established by a corporation, a number of court decisions held that non-rollover IRAs were subject to creditors' claims and would become part of a bankruptcy estate. The 1994 amendment to the statute legislatively overrules case law that held that non-rollover IRAs were subject to creditors' claims and could not be excluded from a bankruptcy estate. Now an IRA that qualifies under IRC Sec. 408 will be exempt from creditors' claims both in and out of bankruptcy, subject to the exceptions discussed below.

The exemption provided for the retirement plans described in the statute is not absolute but is subject to a number of exceptions. Retirement assets may be made subject to a qualified domestic relations order (QDRO) and thus are only exempt from non-family creditors. Additional contributions to the retirement plans described in the statute are not exempt if made within 90 days of the "interposition of the claim on which such judgment was entered." Thus contributions made to the retirement asset during the pendency of the lawsuit or within 90 days before the commencement of the lawsuit would not be protected from the judgment creditor's claims. Additional contributions made to retirement plans that are deemed to be fraudulent conveyances are also not protected from judgment creditors. (Although a discussion of fraudulent conveyances is beyond the scope of this article, basically an additional contribution to, or the creation and funding of, a retirement plan that has the result of rendering the judgment debtor insolvent, or is made just before incurring debts, or is made during the pendency of a lawsuit or with the actual intent to hinder, delay, or defraud creditors would generally be considered a fraudulent conveyance).

One final exception is that none of the above applies to the IRS when it is seeking to enforce a judgment for delinquent taxes. IRC Sec. 6334, which lists property the IRS exempts from levy, does not include retirement plans. Various Federal court decisions interpreting IRC Sec. 6334 have held that state exemptions of certain types of property from claims of creditors do not apply to the IRS and that no provision of state law may exempt property from the collection of Federal taxes.

David S. Kulakoff, CPA, is a partner of Siegel & Kulakoff, CPAs.