Summary:
The bankruptcy court overruled the chapter 7 trustee's objection to the debtor Catherine Myatt's claimed exemption in her interest in her former husband's 401(k) retirement account.
The court found that the consent order entered in the Myatts' state court divorce proceeding, which incorporated their separation agreement, created Ms. Myatt's ownership interest in $22,677.31 of Mr. Myatt's 401(k) account. The order constituted a final resolution of the Myatts' equitable distribution claims and fixed their rights in marital property. Although a qualified domestic relations order (QDRO) was contemplated to implement the transfer, the absence of a QDRO did not impact Ms. Myatt's vested interest established in the consent order.
The court held that Ms. Myatt's interest in the 401(k) account funds was excluded from her bankruptcy estate under 11 U.S.C. § 541(c)(2). As an alternate payee of an ERISA-qualified retirement plan, Ms. Myatt could exclude her interest from the estate like the plan participant. This exclusion applied notwithstanding the lack of a QDRO to effectuate the transfer. The court found the result supported the public policy of protecting retirement assets during the period between an equitable distribution order and execution of a QDRO.
Commentary:
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