Court Opinion

ID: 9693076
Source: CourtListenerOpinion
Date Created: 2023-08-25 16:21:43.914544+00
Date Added: 2024-06-11T18:19:39.999783
License: Public Domain

OPINION
PERRIS, Bankruptcy Judge.
In this case, the bankruptcy trustee objected to debtor’s claim of exemption under California law in her Keogh and Individual Retirement Account (IRA), arguing that they were not necessary for the support of debtor or her dependents in retirement.1 Because we conclude that the bankruptcy court clearly erred in finding that the trustee had not met his burden of proving that the exemption was not properly claimed, we REVERSE.
FACTS
Debtor is an ophthalmologist. In 2002, she and her husband divorced. The dissolution judgment provided for the distribution of various retirement accounts held by debtor and her ex-husband.
When debtor filed her bankruptcy petition in March 2003, she claimed an exemption under California law in all of the retirement accounts, listing their total value at $198,000.2 The trustee objected to *734the claim of exemption in three accounts held solely in debtor’s name: two Keogh accounts and one IRA, arguing that the Keogh accounts are not exempt as a matter of law and that none of the accounts are necessary for debtor’s support when she retires. The trustee did not object to any exemption that might be claimed in a distribution that debtor is entitled to receive from her ex-husband’s retirement accounts pursuant to the dissolution judgment.
After a hearing, the court concluded that the trustee had not met his burden of proving that debtor had not properly claimed her exemptions, and overruled the trustee’s objection. The trustee appeals the court’s order overruling his objection to the claim of exemption.
ISSUES3
1. Whether the court erred in ruling that debtor’s Keogh accounts could be exempt as a matter of law.
2. Whether the court clearly erred in finding that the trustee had not met his burden of proving that the retirement accounts are not necessary for debtor’s support in her retirement.
STANDARD OF REVIEW
We review the scope of a statutory exemption de novo, as a question of law. In re Bloom, 839 F.2d 1376, 1378 (9th Cir.1988). The court’s findings regarding the necessity of retirement accounts for debtor’s support are reviewed for clear error. In re Spenler, 212 B.R. 625, 628 (9th Cir. BAP 1997). Clear error exists when, after examining the evidence, the reviewing court is left with a definite and firm conviction that a mistake has been committed. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).
DISCUSSION
1. Exemption of Keogh accounts
The trustee argued to the bankruptcy court that Keogh accounts are not exempt as a matter of law. The court never specifically addressed this argument, but impliedly rejected it when it overruled the trustee’s objection to the claimed exemption. The cases cited by the trustee in support of this argument are all distinguishable.
In Hebert v. Fliegel, 813 F.2d 999 (9th Cir.1987), the court concluded that Keogh plans are not exempt under Oregon exemption law, which, at that time, provided for exemption of “pensions granted to any person in recognition by reason of a period of employment by ... [any] person, partnership, association or corporation .... ” ORS 23.170 (1985). The court explained that Keogh plans
are funded exclusively by the self-employed individual, who retains complete control over the amounts invested and the management of the funds. The individual also retains the right to terminate the plan and withdraw the funds at any time, subject only to a tax penalty.
813 F.2d at 1001.
The trustee argues that Hebert stands for the proposition that Keogh plans are not exempt as a matter of law, based on the court’s “conclusion” that “the benefits to be derived from granting an exemption *735for self-funded plans are outweighed by the ‘strong public policy that will prevent any person from placing his property in what amounts to a revocable trust for his own benefit which would be exempt from the claims of his creditors.’ ” 813 F.2d at 1001. There are two problems with the trustee’s reliance on Hebert, and on the quoted portion in particular. First, the court did not “conclude” that policy considerations precluded exemption of Keogh plans; the beginning of the sentence quoted above is, “Moreover, the majority of courts that have addressed the policy issues have concluded that” the benefits of exemption are outweighed by the policy against allowing debtors to put their assets beyond the reach of creditors. Id. The court went on to hold that, “[wjhatever the policy considerations, the issue is still governed by the Oregon statute.” Id. at 1002. Thus, it did not rely on policy considerations at all.
Second, the court’s decision was based on the Oregon exemption statute, which did not include self-funded Keogh accounts. Its holding has no application in this case, where the exemption is claimed under a very different California exemption statute.
The other two cases on which the trustee relies are similarly inapplicable. In In re Shuman, 78 B.R. 254, 256 (9th Cir. BAP 1987), we held that a debtor’s interest in profit-sharing and pension plans was included in the debtor’s bankruptcy estate because, under Nevada law, the plans were not valid spendthrift trusts and therefore were not exempt under state law. The issue in this case is neither whether debt- or’s Keogh accounts are exempt under Nevada law, nor whether they are property of her bankruptcy estate.
The question in the portion of the decision in Schwartzman v. Wilshinsky, 50 Cal.App.4th 619, 57 Cal.Rptr.2d 790 (Cal.Ct.App.1996), to which the trustee refers was whether the appellant’s 401(k) plan was “designed and used for retirement purposes” pursuant to Cal.Code Civ. Pro. § 704.115. There is no argument in this case that debtor’s Keogh accounts are exempt under California law only if they were “designed and used for retirement purposes.” The only factual issue in this case, as explained below, is whether the amounts held in debtor’s retirement accounts are necessary to provide for her support after she retires. Thus, Schwartz-man does not support the trustee’s argument that the Keogh accounts are nonexempt as a matter of law.
The bankruptcy court did not err in implicitly rejecting the trustee’s argument that Keogh accounts cannot be exempt as a matter of law.
2. Amounts necessary for the support of debtor in retirement
Debtor claims that the retirement accounts are exempt under Cal.Code Civ. Pro. § 704.115(b). That section exempts amounts held in self-employed retirement plans and IRAs, but “only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires.” Cal.Code Civ. Pro. § 704.115(e).4 In determining *736whether the amounts held in the accounts are necessary for debtor’s support when she retires, the court should consider various factors, including:
the debtor’s present and anticipated living expenses and income; the age and health of the debtor and his or her dependents; the debtor’s ability to work and earn a living; the debtor’s training, job skills and education; the debtor’s other assets and their liquidity; the debtor’s ability to save for retirement; and any special needs of the debtor and his or her dependents.
In re Moffat, 119 B.R. 201, 206 (9th Cir. BAP 1990), aff'd, 959 F.2d 740 (9th Cir.1992)(addressing whether annuity was exempt under statute that exempted matured life insurance policies “to the extent reasonably necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.” 119 B.R. at 203).
Once the debtor claims an exemption on her bankruptcy schedules, “the objecting party has the burden of proving that the exemptions are not properly claimed.” Fed. R, Bankr.P. 4003(c). Thus, in this case, the trustee had the burden to show that debtor had not properly claimed the exemption in her Keogh and IRAs.5
The trustee provided the declaration and testimony of Donald Fife, an accountant, who provided an analysis of debtor’s income and expenses during debtor’s projected work life and retirement. He concluded that debtor needed $123,308 in current retirement funds in order to support her in retirement, which would leave a $100,000 cushion at the end of debtor’s life expectancy. His opinion took into account various facts and assumptions.
At the time of the hearing, debtor was 51 years old. She was a practicing ophthalmologist. Fife assumed that debt- or could work through the age of 65, and projected debtor’s income from her practice over the 15 remaining years of debt- or’s work life at $8,435 per month, which was based on debtor’s bankruptcy schedules and 2002 tax return. From that amount, he deducted $3,414 in business expenses, a number he took from debtor’s bankruptcy schedules. This resulted in annual projected income net of business expenses of $60,252 during debtor’s working life. To this he added $2,400 for rental income that debtor also reported on her bankruptcy schedules, for a total annual income of $62,652.
From this amount, Fife deducted certain expenses. He arrived at the expenses by looking at debtor’s bankruptcy schedules and then adjusting them based on Bureau of Labor statistics used by the Internal Revenue Service in considering offers of compromise. Fife eliminated debtor’s expenses for insurance and transportation, *737based on his understanding that those expenses were being paid as business expenses. He also reduced the amount claimed for electricity from $200 per month to $100, food from $900 per month to $500, clothing from $300 to $100, laundry/dry cleaning from $100 to $50, and medical and dental from $1,040 to $100. He eliminated debtor’s $1,500 child support expense, based on his understanding that debtor was no longer paying support. He also added in a $100 contingency.
For debtor’s retirement years and through her life expectancy, Fife eliminated income from work and calculated a projected amount of $1,550 for social security income. Because debtor could no longer deduct her automobile or insurance as a business expense once she retired, he also included those as individual expenses in retirement.
Based on those calculations, Fife concluded that debtor currently needed $123,308 in retirement funds to support her in her retirement. This amount took into account a projection of 7 percent earnings on retirement funds, and the addition to the retirement account each year of the amount of income in excess of expenses.
Debtor testified that she continues to have a $1,200 per month child support obligation that she pays to her ex-husband for their 13-year-old daughter. She also testified that the dissolution judgment from her divorce entitles her to one-half of the community property retirement accounts that the couple had during the marriage. At the time of dissolution, the spouses had five retirement accounts, some held in debtor’s name and some in the name of her ex-husband. The dissolution judgment provides that each spouse will retain the accounts held in their own name, and that an equalizing division will be made from debtor’s ex-husband’s AMGR account. According to the list of property used in the dissolution action, as of May 16, 2002, the parties’ retirement accounts were valued as follows:
AMGR Money Savings Plan $727,484
Fidelity IRA (husband) 14,181
Fidelity IRA (wife) 20,939
Fidelity Keogh 112,156
Fidelity USC 401 and 403 48,966
Those accounts totaled $923,726, to which debtor was entitled to half.
The retirement accounts had not been divided at the date of the trial, and debtor testified that she did not know how much her distribution would be. She estimated that she would receive $200,000, based on her understanding that her ex-husband had approximately $500,000 in his retirement account at the time of separation. She acknowledged that, if his retirement account was larger than that, she would be entitled to more.
Debtor was also questioned about a document that showed the estimated value of the couple’s total retirement assets at $1,095,151, which debtor testified she thought was approximately correct with regard to the amount in her accounts and she hoped was accurate as to her ex-husband’s accounts. Debtor acknowledged that, if that amount is accurate, she had no reason to doubt that she would be entitled to $307,000 as her equalizing distribution.
Fife’s projections of the amount needed to support debtor in her retirement did not take into account either the child support debtor is obligated to pay or the fact that she is entitled to a substantial sum in an equalizing distribution from the dissolution of her marriage. Fife testified that, assuming debtor was obligated to pay $1,500 per month in child support (based on outdated information; debtor testified that she was currently obligated to pay $1,200 per month) and that she received a lump sum distribution of retirement funds from the dissolution of $307,000, debtor would *738have $470,000 left over in retirement funds at the end of her life expectancy. Based on that fact, Fife opined that debtor would not need the IRA and Keogh accounts that she sought to exempt in the bankruptcy ease.
The bankruptcy court rejected Fife’s analysis as “seriously flawed,” Transcript of May 21, 2004 hearing at 8:25 — 9:1, and concluded that the trustee had failed to meet his burden of proof. The court noted five “faulty assumptions” in Fife’s report, which caused the court to view the income and expense projections as “significantly flawed.” Id. at 5:16-17; 7:25 — 8:1.
First, the court noted that Fife erroneously understood that debtor owned and operated her own ophthalmology practice. In fact, the practice had been sold and debtor was working as an independent contractor for other ophthalmologists.
This assumption did not affect Fife’s analysis of debtor’s income or expenses, nor was is used to project what debtor might need for her support on retirement. In his declaration, Fife explained that he calculated debtor’s monthly income based on what debtor listed on her bankruptcy schedules, which was from her independent contractor work, and from her 2002 corporate tax returns, which reflected income of debtor’s corporation.6
Second, the court pointed out that Fife had said that he had not allowed for the eventual sale of debtor’s business and that any proceeds received from such a sale could be used to fund debtor’s retirement. As the court recognized, the business had already been sold and there were no remaining proceeds.
Because Fife did not depend on any projected proceeds from the sale of debt- or’s business, nor rely on her ownership of a business in projecting her income, this faulty assumption could not have affected his analysis.
Third, the court noted that Fife failed to include debtor’s child support obligation, based on faulty information that debtor’s children were over 18 years old. As the court noted, one daughter was 19 years old, living with debtor, and debtor was paying $1,200 per month child support for a 13-year-old daughter who lived with her father.
Although Fife did not include child support in his written projections, he did testify that, if debtor was obligated to pay $1,500 per month for five years, and assuming that she received a lump sum distribution of a retirement fund under the dissolution judgment, debtor would have sufficient funds necessary to support herself in retirement. There was no evidence contradicting that conclusion.
Fourth, the court questioned Fife’s use of a website called “salary.com” to find that the median expected income of an ophthalmologist in Los Angeles is $210,416. The court found it. unclear whether those numbers took into account ophthalmologists who were working as independent contractors.
Although the court’s criticism of the basis for the median income is reasonable, it did not impact Fife’s analysis. Fife did not attribute to debtor the median income of ophthalmologists in Los Angeles; he used her actual income, earned working less than full-time. He did mention the median income in explaining why he did not adjust the income and expense numbers for inflation over time; he testified that, based on the median income for ophthalmologists in the area, he assumed that debtor’s income would increase more *739than the rate of inflation.7 That assumption does not make the entire projection faulty. Fife presumably could have adjusted both income and expense for inflation, coming to the same result.
Finally, the court questioned Fife’s reductions in debtor’s claimed expenses, reducing the food expense from $900 to $500 per month, clothing from $300 to $100, and laundry $100 to $50. The court concluded that Fife was unaware that debtor’s older daughter was living with and still dependent on debtor, and therefore found the reductions not reasonable. Notably, the court did not question Fife’s exclusion of certain expenses, including insurance and transportation costs, based on his understanding that those expenses were being deducted as business expenses.8
Debtor testified that her 19-year-old daughter was dependent on her for room and board as well as school expenses and psychotherapy.9 Thus, if Fife’s reductions in certain expenses were based on the fact that debtor was supporting herself only, the reductions were improper. However, those additional expenses relating to the 19-year-old daughter will last only a few more years, at the most. There is no evidence that debtor will need to support her daughter 16 years from now when debtor retires.
The bankruptcy court also concluded that the trustee had failed to provide evidence of other factors that are to be considered in determining whether retirement funds are necessary for the debtor’s support in retirement, such as the health of debtor and her dependents, debtor’s other assets and their liquidity, debtor’s ability to save for retirement, and any special needs of debtor and her dependents.
The factors set out in Moffat are factors the court should consider; there is no requirement that the trustee provide evidence of each one, if there is other evidence from which it can be determined that the retirement funds at issue are not necessary for debtor’s support upon retirement. In this case, there was uncontroverted testimony that debtor is entitled to a lump sum distribution of retirement funds pursuant to her dissolution judgment in addition to the accounts at issue in this appeal, which she expects to be at least $200,000 and could be as much as $307,000. The testimony was uncontroverted that debtor was working nearly three days per week at the time of the trial, and hoped to be able to do better after the bankruptcy case was concluded. There was no evidence that her health in any way interfered with her ability to work or that she was not physically capable of working *740full-time. Where a debtor is working and there is no evidence about the debtor’s health, it can be inferred that the debtor’s health is not an impediment to future productive work.
The lack of evidence about debtor’s other assets, their liquidity, and her ability to save for retirement is not critical in this case, where it is known that debtor will have at least $200,000 in retirement funds available to her pursuant to the dissolution judgment in addition to amounts in the disputed accounts. If she has sufficient funds in a retirement account now, there is no need to be concerned about whether she has other liquid assets that can be used for retirement or whether she can save for retirement.
Fife testified that debtor needed to have approximately $123,000 in current retirement funds in order to provide for her support in retirement. Even taking into account the additional five years of child support that debtor has to pay, and the fact that she is currently providing some support for her 19-year-old daughter, it is unreasonable to conclude that those additional obligations would increase debtor’s need for current funds beyond the $200,000 that she admits she will receive.
The bankruptcy court did not mention at all the undisputed evidence that debtor will have a substantial exempt retirement fund to provide for her on retirement. Given the undisputed evidence about the value of that fund, as well as the fact that the errors in Fife’s analysis that the court mentioned do not undermine his ultimate conclusion, we are left with a definite and firm conviction that the court erred in finding that the trustee had failed to meet his burden of proving that the exemption was not properly claimed.
We realize that the reviewing court’s role is limited when reviewing findings of fact; great deference is given to the trial court, and the clearly erroneous standard “does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently.” Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). In this case, however, the bankruptcy court ignored the uncontroverted evidence that debtor would have a substantial exempt retirement fund available to her, even without the funds held in the IRA and Keogh accounts. Even without requiring her to maximize her income by working full time, the evidence was that the distribution from her ex-husband’s retirement funds under the dissolution judgment would be sufficient to supply her needs in retirement. Therefore, the court clearly erred in overruling the objection to debt- or’s claim of exemption.10
CONCLUSION
The bankruptcy court clearly erred in finding that the trustee failed to meet his burden of proving that debtor’s IRA and Keogh accounts are not necessary for her support when she retires. Therefore, we REVERSE.

. Debtor did not claim in the bankruptcy court and does not claim on appeal that the accounts are not property of the estate. Therefore, the only issue before us is whether the accounts are exempt under California law.

. Debtor’s original schedules listed Keogh accounts and IRAs valued at $579,813, all of which debtor claimed exempt. Later, debtor amended her schedules to value the exempt accounts at $198,000. The trustee objects to debtor's claim of exemption in three accounts, which are shown on trial exhibit 3 as "W’s IRA,” "W’s Fidelity Keogh,” and "W’s Merrill Keogh.” That exhibit shows an estimated value of each of the three accounts as of February 29, 2004, as $23,060 for the IRA, $132,422 for the Fidelity Keogh account, and $84,607 for the Merrill Keogh account. The exhibit also lists four other retirement ac*734counts, which are held in debtor's ex-husband's name.

. Appellee uses part of her Statement of Issues to complain that the trustee’s second objection to debtor's exemptions was improper and that the trustee's counsel had a conflict of interest. She does not make any argument about those issues, so we did not address them.

. In her schedules, debtor claimed the exemption under Cal.Code Civ. Pro. § 703.140(b)(10)(E). However, both she and the trustee have argued about whether the exemption is proper under Cal.Code Civ. Pro. § 704.115(b), so that is the statute we will apply. Both provisions limit the exemption to the amount necessary for the support of the *736debtor, which is the factual issue raised in this appeal.
The trustee does not make the argument that is pending before the United States Supreme Court, that IRAs are not exempt as a matter of law under Bankruptcy Code § 522(d)(10)(E), which is comparable to Cal. Code Civ. Pro. § 703.140(b)(10)(E). See In re Rousey, 347 F.3d 689 (8th Cir.2003), cert. granted, 541 U.S. 1085, 124 S.Ct. 2817, 159 L.Ed.2d 246 (2004) (No. 03-1407)(argued December 1, 2004).

. We express no view about the issue addressed in Judge Klein’s concurrence, because it is neither presented in nor dispositive of this appeal. We do note, however, that the Supreme Court in Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000), made clear that burdens of proof could be established by the Bankruptcy Rules as well as by the Bankruptcy Code: "The legislative history indicates that the burden of proof on the issue of establishing claims was left to the Rules of Bankruptcy Procedure." Id. at 22 n. 2, 120 S.Ct. 1951.

. Debtor testified that she sold her business in 2001.

. The trustee correctly points out that debtor is currently earning $100 per hour. If she were to work 40 hours a week, 50 weeks in a year, her income would be $200,000, very close to the $210,416 median used by Fife.

. Fife looked at debtor’s Schedule J, which showed current business expenses totaling $3,414.00 per month. At the time debtor filed bankruptcy, she no longer owned a business, yet she continued to claim $3,414.00 as business expenses. According to Fife's testimony, debtor’s corporation had deducted auto expenses in 2002. Debtor never disputed Fife's assumption that the transportation and insurance costs continued to be included
in her reported business expenses even after the corporation was sold.
Nor did the court or debtor challenge Fife’s reduction of debtor’s reported medical and dental expenses from $1,040 per month to $100 per month, based on Fife’s application of the Bureau of Labor statistics. There was no evidence that this reduction was improper.

.The trustee argues that Fife was correct that debtor’s daughter did not live with her, pointing out that debtor’s 13-year-old lived with her father. The trustee ignores the evidence that debtor’s 19-year-old daughter was dependent on her and caused debtor to incur expenses for her support.

. After the court overruled the trustee’s objection to debtor's claim of exemptions, debt- or was denied a discharge (Adv. No. 03-01856). The appeal of the discharge denial was dismissed on December 6, 2004. BAP No. CC-04-1430. Neither party argues that the denial of discharge should affect the analysis of the trustee’s objection.