IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
MORTON AUGENSTEIN, No. 1-87-02116
Memorandum of Decision
The Trustee in this Chapter 7 case objects to the debtor's claim of a private retirement plan as exempt
pursuant to California Code of Civil Procedure section 704.115. The plan was funded in 1982 by
contributions made by corporations controlled by the debtor, but the contributions were proper and the
plan meets IRS standards for tax-deferred status. In 1984 and 1985, the debtor borrowed a total of
$15,000.00 from the plan; its current assets consist of the debtor's notes and about $150,000.00 in stock.
Aside from the loans to the debtor, no facts are alleged which question the bona fide nature of the
retirement plan. However, the Trustee argues that the exemption should not be allowed because the
debtor is the sole trustee and beneficiary of the plan and has at all times had the unrestricted power to
invade the plan for any purpose and to terminate the plan and immediately obtain its assets.
The law on this issue has been thoroughly reviewed in two recent appellate cases, In re Daniel
Cir.1985) 771 F.2d 1352, cert. den. 475 U.S. 1016 (1986), and In re Bloom
(9th Cir.1988) 839 F.2d
1376. The Court resolves the dispute here by application of the rules set down in these cases.
The Trustee is incorrect in arguing that a retirement plan loses its exempt status whenever the debtor
exercises complete control over the plan and its assets. The Court of Appeals has made it clear that the
proper test is how the debtor actually used the plan, not how he could have used it; if the plan has been
used only for proper retirement purposes, then it is exempt notwithstanding the degree of control the
debtor had over it. Thus, in Daniel
exempt status was disallowed because the debtor used the plan like
an unrestricted bank account, removing funds in a way more like a withdrawal than a loan. 771 F.2d at
1357. On the other hand, the plan was found exempt in Bloom
because the debtor observed the
formalities of the plan and did not abuse it. 839 F.2d at 1379. The test, then, is not how the debtor could
used the plan but rather how the debtor actually
used it. If the debtor did not so abuse the plan as
to justify a finding that it was not truly used for retirement purposes, then the exemption must be allowed.
Applying the above standards, it is clear that the debtor here did not abuse his retirement plan so as
to lose its retirement purpose. The only acts he has taken which might be inconsistent with retirement
purposes was to make two unsecured loans to himself some years before bankruptcy, but these loans total
only about10%of the plan assets; personal loans of 60% were not considered fatal in Bloom
Bankruptcy Rule 4003(c) places the burden of proof in exemption matters on the objecting party. The
Trustee here has failed to allege any facts which, if true, would establish that the debtor did not use his
retirement plan for retirement purposes. Pursuant to Bloom
, it is the actual past use and not the possible
future use of the plan which determines its exemptibility. Accordingly, the objection to the claim of
exemption must be overruled.
Pursuant to Bankruptcy Rule 9021, counsel for the debtor shall submit an appropriate form of order.
Dated: August 5, 1988 _____________________