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Prior to the petition date, a Minnesota state court awarded the debtor a marital interest in his ex-wife’s 401(k) and IRA, but the debtor never filed a Qualified Domestic Relations Order, the ex-wife’s accounts were not renamed, and no funds were transferred from the ex-wife’s accounts into an account under the debtor’s own name.  Several months later, the debtor filed a Chapter 7 bankruptcy petition and claimed an exemption for his interest in both the 401(k) and IRA. The bankruptcy court denied such exemption, and the BAP affirmed.  In Lerbakken v. Sieloff & Assocs., P.A., 949 F.3d 432 (8th Cir. 2020), the Eighth Circuit also affirmed, holding that the debtor’s marital interest in his ex-wife’s IRA and 401(k) did not constitute “retirement funds” under § 522(b)(3)(C), and thus did not qualify for an exemption in his bankruptcy case. 

In reaching its decision, the Eighth Circuit relied upon a three-part test set forth in Clark v. Rameker, 573 U.S. 122, 130 (2014), to determine whether the funds in the ex-wife’s IRA and 401(k) were “retirement accounts.”  Under Clark, the account holder must meet three objective criteria to qualify for an exemption under Section 522(b)(3)(C): (1) they are able to make additional contributions to the funds; (2) they are not obligated to withdraw the funds, and (3) they must pay a penalty to withdraw the funds at any time, for any purpose, prior to the age of 59 ½.”  The debtor attempted to persuade the Eighth Circuit by arguing that both he and his spouse intended the accounts to be for their mutual support in retirement.  The Eighth Circuit rejected this position because the Clark court explicitly considered and dismissed the subjective intent of the parties as a criterion for determining whether funds constitute “retirement funds” under the Bankruptcy Code. The Eighth Circuit applied the three factors to both the IRA and 401(k) in this case and reached the same conclusion as the courts below, holding that neither account constituted “retirement funds” under Clark, and thus neither account was entitled to an exemption under Section 522(b)(3)(C).