This paper discusses the case In re Tew, 03-19946-AJM-7, which addresses the issue of the exemption of QDRO interest in retirement funds in bankruptcy under Indiana law. The debtor in In re Tew claimed a $5,000 exemption in a mutual fund transferred to her by her former husband pursuant to a Qualified Domestic Relations Order (“QDRO”) from the former husband’s 401(k) plan. The Chapter 7 trustee objected to the exemption, and the court held that the $5,000 was not exempt.
In reaching its decision, the court first noted that the 401(k) plan itself is a qualified pension plan under ERISA and when the debtor is a plan participant under an ERISA qualified plan, the debtor’s interest in the plan remains out of reach by his or her creditors and the bankruptcy trustee. This is because ERISA’s anti-alienation provision fall under § 541(c)(2)’s limited exception to that which is considered property of the estate. See Patterson v. Shumate, 504 U.S. 753, 112 (1992). The heart of the decision is whether the $5,000 is property of the estate, given a split of authority in the courts on whether the § 541(c)(2)/Patterson exception extends to debtors whose interest is obtained via QDROs. The court considered several grounds for which this would or would not constitute property of the estate.
The court finally addressed whether the $5,000 would be exempt under Indiana exemption laws. The court determined that because the contributions to the 401(k) plan were made by debtor’s former husband, and not by “by or on behalf of the debtor,” the $5,000 was held not to be exempt under Indiana Code 34-55-10-2(b)(6).
Indiana Code 34-55-10-2(b)(6) was amended in 2005, and now provides relief for an ex-spouse who takes an interest in an ERISA plan as did the debtor in Tew. The amended statute deletes the phrase “by or on behalf of the debtor,” which would have led to the exclusion of the $5,000 from debtor’s estate had the debtor filed her bankruptcy case after the statute’s amendment.
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