Can creditors grab your nest egg?

Related Ads
Need Professional Help? Talk to a Lawyer
Enter Your Zip Code to Connect with a Lawyer Serving Your Area
searchbox small

Question:

Are ERISA qualified pension and S&PS plans with non-assignment restrictions fully protected from all creditors, excluding federal agencies, such as the IRS? Does federal law or state law govern in this situation? If these plans are protected, is the protection absolute?

Answer:

Generally, plans that are qualified under Section 401(a) of the tax code and that are also covered under Title I of ERISA are safe from creditors. Plans that are not subject to Title I of ERISA include government plans, church plans, and self-employed one-participant plans -- that is, Keogh plans that cover no common law employees.

As with many vexatious laws involving taxes, however, there are exceptions. In this case, there are two of them: Federal tax liens and court-ordered divorce payments are not protected. Otherwise, the protection seems certain, based on the 1992 Supreme Court case, Patterson v. Shumate.

Also, federal ERISA preempts state law, providing added protection.

In spite of these protections, creditors continue to work hard in the courts, looking for loopholes that would give them access to pension assets -- so far without success when the plan is qualified under both 401(a) and Title I of ERISA.

Get Informed
Empower yourself with our plain-English information
Do It Yourself
Handle routine tasks with our products
Find a Lawyer
Connect with a local lawyer who meets your needs
The fastest, easiest way to find, choose, and connect to estate planning lawyers
LA-NOLO5:LDR.1.5.0.20140409.25642