Court Opinion

ID: 9856174
Source: CourtListenerOpinion
Date Created: 2023-09-24 06:39:48.627779+00
Date Added: 2024-06-11T09:26:15.615167
License: Public Domain

McGEE, Judge.
The underlying judgment in this case was entered on 3 May 2004, in which Plaintiff was awarded $567,000.00 in compensatory and punitive damages. Defendant moved to claim certain property as exempt from Plaintiff’s judgment on 9 June 2004. By order entered 16 July 2004, an assistant clerk of Robeson County Superior Court ordered that Defendant’s two IRA accounts and other items not relevant to this appeal were exempt property and not subject to the 3 May 2004 judgment. Upon Plaintiff’s motion, a writ of execution was *253issued 28 November 2005 by another assistant clerk of Robeson County Superior Court, which directed the Sheriff of Durham County to satisfy the 3 May 2004 judgment out of Defendant’s personal and/or real property located in Durham County, including Defendant’s two IRAs.1 In response, Defendant filed a motion on 21 November 2007 to affirm exemption and vacate the 28 November 2005 writ of execution.
By order entered 21 July 2008, the trial court affirmed the 9 June 2004 motion to claim exempt property, stating:
By virtue of the Motion to Claim Exempt Property dated June 9, 2004 ... and the order thereon-dated July 16, 2004..., the Subject IRAs were and are legally exempt from execution in this action, and [Defendant], subject to the other provisions in this order, retains the Subject IRAs free of the enforcement of the claims of [Plaintiff] in this action.
The trial court further declared the writ of execution and the accompanying levy against Defendant void, and it ordered Defendant’s IRAs immediately released from any restrictions “placed thereon as a result of the Writ of Execution and Notice of Levy[.]” However, the trial court further ordered in relevant part that:
Should [Djefendant make any withdrawal of any funds from the Subject IRAs, the entire amount of said withdrawal shall immediately be placed in the trust account of his counsel, [or other authorized agent], and [the funds shall be administered] in accordance with the terms herein. Defendant or [Defendant’s] counsel shall immediately, thereafter give [Plaintiff’s counsel notice of the withdrawal by the most expedient, verifiable means. Plaintiff shall then have five (5) business days from the date of such notification to file a motion or otherwise petition the Court to determine if the withdrawal funds are no longer exempt from execution. ... If [P]laintiff timely makes such a motion or petition, the withdrawn funds shall remain in trust or escrow pending a determination of their exempt status, or until the parties mutually agree to release of such funds.
*254Both Plaintiff and Defendant appeal from the trial court’s 21 July 2008 order.
I.
Defendant’s sole argument on appeal is that the trial court erred by requiring Defendant to place any funds withdrawn in the future from his IRAs into escrow or other trust pending a determination by the trial court as to whether those funds retained their exempt status. We agree.
N.C. Gen. Stat. § 1C-1601 identifies property that is exempt from claims of creditors. The version of N.C. Gen. Stat. § 1C-1601 in effect for the relevant period states:
(a) Exempt property. Each individual, resident of this State, who is a debtor is entitled to retain free of the enforcement of the claims of creditors:
(9) Individual retirement plans as defined in the Internal Revenue Code and any plan treated in the same manner as an individual retirement plan under the Internal Revenue Code[.]
N.C. Gen. Stat. § lC-1601(a)(9) (2005). Plaintiff admits that Defendant’s IRAs are covered under the definition of exempt retirement plans as stated in N.C. Gen. Stat. § lC-1601(a)(9). However, Plaintiff contends that N.C. Gen. Stat. § lC-1601(a)(9) only applies to funds withdrawn after age 59 'A, or pursuant to certain other limited exceptions. Plaintiff argues that if Defendant withdraws funds before age 59 A and incurs a penalty for the withdrawal, because no exception applies, then Plaintiff should be able to access those funds to satisfy Plaintiff’s judgment against Defendant. For this reason, Plaintiff argues that the trial court acted within its power by ordering that any funds withdrawn from Defendant’s IRAs be held in escrow until a determination is made by the trial court as to whether the funds were withdrawn for proper purposes — i.e., purposes which would not incur any early withdrawal penalties.
Defendant argues that, because N.C. Gen. Stat. § lC-1601(a)(9) exempts his IRAs from Plaintiff’s judgment against him, Plaintiff is not entitled to any funds currently held in Defendant’s IRAs, and the trial court erred in ordering a process to make a determination concerning whether Plaintiff is entitled, pursuant to the 3 May 2004 judg*255ment, to any potential funds Defendant withdraws from his IRAs. This issue is one of first impression in this State.
Exemption statutes are to be interpreted liberally. Accordingly, based on: (1) the enactment of legislation in 1995 to protect a debtor’s retirement income from the claims of creditors; . . . and (4) the policy that exemption statutes are to be interpreted liberally, the Court concludes that the North Carolina General Assembly’s purpose in enacting N.C. Gen. Stat. § lC-1601(a)(9) was to protect a debtor’s right to receive retirement benefits])] Rather than give a blanket exemption to all “retirement” plans, the General Assembly limited the exemption to any retirement tool that was “treated in the same manner as an individual retirement plan under the Internal Revenue Code.” In so doing, the General Assembly prohibited debtors from labeling an ordinary savings account as an individual retirement plan and thereby shielding that asset from the reach of creditors under the charade that the exemption statute applied.
In re Grubbs, 325 B.R. 151, 154-55 (Bankr. M.D.N.C. 2005) (internal citation omitted); see also Elmwood v. Elmwood, 295 N.C. 168, 185, 244 S.E.2d 668, 678 (1978); In re Laughinghouse, 44 B.R. 789, 791 (Bankr. E.D.N.C. 1984) (“The courts have held that the exemption laws in North Carolina must be liberally construed in favor of the debtor.”), Abrogated on different issue by In re Pinner, 146 B.R. 659 (Bankr. E.D.N.C. Oct 26, 1992).
II.
In Rousey v. Jacoway, 544 U.S. 320, 161 L. Ed. 2d 563 (2005), the United States Supreme Court reasoned:
The statutes governing IRAs persuade us that [the petitioners’] right to payment from IRAs is causally connected to their age. Their right to receive payment of the entire balance is not in dispute. Because their accounts qualify as IRAs under 26 U.S.C. § 408(a) (2000 ed. and Supp. II) [26 USCS § 408(a)], the [petitioners] have a nonforfeitable right to the balance held in those accounts, § 408(a)(4). That right is restricted by a 10-percent tax penalty that applies to withdrawals from IRAs made before the accountholder turns 59 A. Contrary to [the respondent’s] contention, this tax penalty is substantial. The deterrent to early withdrawal it creates suggests that Congress designed it to preclude early access to IRAs. The low rates of early withdrawals are consistent with the notion that this penalty substantially deters *256early withdrawals from such accounts. Because the 10-percent penalty applies proportionally to any amounts withdrawn, it prevents access to'the 10-percent that the [petitioners] would forfeit should they withdraw early, and thus it effectively prevents access to the entire balance in their IRAs. It therefore limits the [petitioners’] right to “payment” of the balance of their IRAs. And because this condition is removed when the accountholder turns age 59 %, the [petitioners’] right to the balance of their IRAs is a right to payment “on account of’ age. The [petitioners] no more have an unrestricted right to payment of the balance in their IRAs than a contracting party has an unrestricted right to breach a contract simply because the price of doing so is the payment of damages.
Rousey, 544 U.S. at 327-28, 161 L. Ed. 2d at 571-72 (footnotes omitted). Following the reasoning of Rousey, we hold that Defendant’s right to withdraw funds from his IRAs is not “unrestricted,” and thus his IRAs are not analogous to checking accounts or other non-restricted accounts. Grubbs, 325 B.R. at 155.
The statute pertaining to exemptions from judgments, N.C. Gen. Stat. § lC-1601(a)(9), references the Internal Revenue Code only as it pertains to the definition of retirement plans: “Individual retirement plans as defined in the Internal Revenue Code and any plan treated in the same manner as an individual retirement plan under the Internal Revenue Code[.]” There is no dispute that Defendant’s IRAs fall within this definition. N.C. Gen. Stat. § lC-1601(a)(9) does not indicate that any other provisions of federal law may be consulted in determining whether Defendant’s IRAs, or the funds contained within, are exempt from Plaintiff’s judgment. Defendant argues that only North Carolina law should apply. Plaintiff does not answer Defendant’s argument on this point. We hold that, because N.C. Gen. Stat. § lC-16.01(a)(9) only references the Internal Revenue Code to clarify what retirement accounts are covered by the creditor exemption, North Carolina law governs the resolution of this issue. See In re Coppola, 419 F.3d 323, 329 (5th Cir. Tex. 2005); In re Rayl, 299 B.R. 465, 467 (Bankr. S.D. Ohio 2003).
Because this is an issue of first impression, however, we look for guidance to decisions from other jurisdictions. In In re Brucher, 243 F.3d 242, 243 (6th Cir. Mich. 2001), the plaintiff argued that the defendant’s IRA could be exempt from creditors “if and only if payment thereunder is made ‘solely... “on account of illness, disability, death, age or length of service.” ’ ” The Sixth Circuit disagreed, stating:
*257This reading, in our view, suffers from at least two flaws. In the first place, § 522(d)(10)(E) does not contain the word “solely”; it merely provides that the payment must be made “on account of’ age. Like pensions, IRAs are structured to provide maximum payments upon the participant’s reaching a certain age. The fact that early withdrawal might be available — subject, in the case of IRAs, to a 10 percent penalty for withdrawals made before the beneficiary has attained the age of 59 A, see 26 U.S.C. § 72(f)(1) — is irrelevant, as the statute does not require that the payment be made “solely” on account of age.
Brucher, 243 F.3d 242, 243-44; see also Clark v. Lindquist, 683 N.W.2d 784, 787 (Minn. 2004) (“[I]t seems to us that our legislature clearly intended that IRAs generally be exempt by expressly listing them, in contrast to 11 U.S.C. § 522(d)(10)(E), which does not mention them by name. Furthermore, the debtor’s access to the funds is not completely unfettered.”); Rayl, 299 B.R. at 467 (“Section 2329.66(A)(10)(c) of the Ohio Revised Code specifically refers to individual retirement accounts, individual retirement annuities, Roth IRA’s and education IRA’s. Unlike the Michigan statute at issue in [Lampkins v. Golden, 28 Fed. Appx. 409 (6th Cir. Jan. 17, 2002)], it does not reference the whole of § 408 of the Internal Revenue Code. Furthermore, the Ohio statute exempts [rollover IRA’s] only to the extent that the contributions are less than or equal to . . . the applicable limits imposed by federal statutes.”).
We note that even where a statute makes specific reference to payments made from IRAs, appellate courts have tended to refer to IRAs in general, and not specifically to withdrawal of funds from IRAs, even when the withdrawal of funds was in issue.
The parties have not argued, so we do not decide, that there is a difference between exempting the right to receive payment from an IRA versus exempting the IRA itself. The Supreme Court does not appear to perceive any difference of significance. Compare Rousey, 544 U.S. at 325 (“the right to receive payment may be exempted”), with id. at 326 (“IRAs can be exempted”). Hence, we, too, will assume the semantic interchangeability and refer to exempting both in this opinion.
In re Krebs, 527 F.3d 82, 85 n.3 (3d Cir. Pa. 2008). See also Brucher, 243 F.3d at 243-44; Clark, 683 N.W.2d at 787; In re Rayl, 299 B.R. at 467.
*258Statutes from certain other jurisdictions include express limitations on the exemption from creditors enjoyed by retirement funds. See e.g., 11 U.S.C. § 522(d)(10)(E); Ga. Code Ann. § 44-13-100(2)(f); Minn. Stat. § 550.37(24)(a); Ohio Rev. Code Ann. § 2329.66(A)(10)(b). N.C. Gen. Stat. § lC-1601(a)(9) contains no such restrictions. Plaintiff’s reliance on Krebs for the proposition that the trial court acted correctly in reserving the right to determine whether Defendant’s withdrawals are for proper purposes is misplaced, as the relevant statute in Krebs, 11 U.S.C. § 522(d)(10)(E), includes express restrictions not included in N.C. Gen. Stat. § lC-1601(a)(9).
We find the reasoning in the cases cited above persuasive. Ñ.C. Gen. Stat. § lC-1601(a)(9) does not contain any language evincing an intent on the part of the General Assembly to treat withdrawals from IRAs differently than funds held within IRAs, and we are not prepared to infer any such intent. The plain language of N.C. Gen. Stat. § lC-1601(a)(9) states that IRAs are exempt from judgment. The most straightforward and logical reading of N.C. Gen. Stat. § lC-1601(a)(9) is that not only are the IRAs themselves exempt, but Defendant’s legal use of the IRAs, in the same manner as if there were no judgment against Defendant, is also exempt. See Krebs, 527 F.3d at 85 n.3; Brucher, 243 F.3d at 243-44.
Logically and' practically this interpretation is the most sensible. As stated in Rousey, any early withdrawals not covered by the limited exemptions made by Defendant from his IRAs will incur serious financial penalties. Rousey, 544 U.S. at 327-28, 161 L. Ed. 2d at 571-72. This is Defendant’s choice to make, however. Though early withdrawals from Defendant’s IRAs may subject Defendant to serious financial penalties and prevent him from realizing the full financial benefit of the protected status of his IRAs, early withdrawals from IRAs are not illegal and do not constitute improper use of those IRAs.
While we understand the dissent’s concern that the protections afforded by N.C. Gen. Stat. § lC-1601(a)(9) could allow an IRA account holder to withdraw IRA monies for purposes unrelated to retirement or other penalty-free exceptions, it is the province of the General Assembly, not this Court, to craft legislation. The dissent correctly states that there is no express exception in N.C. Gen. Stat. § lC-1601(a)(9) providing an exemption from creditors for monies withdrawn from an IRA prior to the account holder reaching the age of 59 A, or for any of the other penalty-free exemptions provided for by the IRS. In support of its argument, the dissent cites Sara Lee *259Corp. v. Carter, 351 N.C. 27, 519 S.E.2d 308 (1999), stating that “[g]enerally speaking” (emphasis added),
where the legislature has made no exception to the positive terms of the statute, the presumption is that it intended to make none, and it is a general rule of construction that the courts have no authority to create, and will not create, exceptions to the provisions of a statute not made by the act itself.
Id. at 36, 519 S.E.2d at 313.' Although we agree that the rule of statutory construction cited in Sara Lee is an appropriate rule of construction in certain circumstances, there are many rules of statutory construction, and not every rule will be appropriate in any given case. We believe this rule is inappropriate on the facts before us, as the ultimate result of its use could lead to results we believe were not intended by the General Assembly.
If we were to find this particular rule of construction controlling in the case before us, we would be constrained to hold that no funds are ever fully protected from execution once they are withdrawn from an IRA. This would include funds withdrawn after the age of 59 V¿, penalty-free and for the purposes of support in retirement, because the language of N.C. Gen. Stat. § lC-1601(a)(9) contains no exception for funds withdrawn after the IRA account holder reaches the age of 59 H (“Individual retirement plans as defined in the Internal Revenue Code and any plan treated in the same manner as an individual retirement plan under the Internal Revenue Code [are exempt from the claims of creditors.]”). Even Plaintiff does not construe N.C. Gen. Stat. § lC-1601(a)(9) in this manner. As the General Assembly has not included language in N.C. Gen. Stat. § lC-1601(a)(9) excluding the use of any IRA funds from the creditor exemption, we cannot usurp the role of the General Assembly and decide that some uses of withdrawn IRA funds will not be exempt, while other uses will be.
As we previously stated, it is not illegal, or on its face unethical, to withdraw IRA funds early for any reason. Early withdrawal of funds, when not covered by one of the exceptions created by the United States Congress is, however, discouraged by the substantial early withdrawal penalty.
We therefore hold, liberally construing the statute in favor of Defendant, Elmwood, 295 N.C. at 185, 244 S.E.2d at 678; Laughinghouse, 44 B.R. at 791, that N.C. Gen. Stat. § lC-1601(a)(9) exempts Defendant’s IRAs and Defendant’s legal use of funds con*260tained within those IRAs, from Plaintiffs judgment. As the issue is not before us, we do not make any holding regarding any question concerning contributions Defendant may have made, or may in the future make, to his IRAs.
III.
We therefore vacate that portion of the trial court’s 21 July 2008 order requiring Defendant to place in escrow any funds he may withdraw from his IRAs to await decision by the trial court as to whether the funds are subject to Plaintiff’s judgment. We affirm the remainder of the trial court’s 21 July 2008 order. Our holding in Defendant’s appeal has also decided Plaintiff’s appeal of the trial court’s order. We therefore do not address Plaintiff’s appeal.
Affirmed in part, vacated in part.
Judge JACKSON concurs.
Judge ERVIN concurs in part and dissents in part with a separate opinion.

. One of the retirement account numbers was listed in Defendant’s motion for exemption and Defendant’s motion to affirm exemption and vacate writ of execution as “Y99-254911.” In the writ of execution one of the retirement account numbers was listed as “Y99-15491” and in a 19 May 2008 affidavit by Defendant, one of his retirement account numbers was listed as “Y99-154911.” No argument has been made on appeal concerning the discrepancies between the account number for this retirement account, and we assume these numbers all refer to the same account. The second retirement account is listed as “Y99-037842” in all four documents.