Tax Lawyer's Blog

Although federal bankruptcy laws supersede state laws, states are allowed to choose whether to apply their own asset exemptions or the federal exemptions. Florida, like most states, opts out of the federal system in favor of it’s own system.

The Bankruptcy Court had ruled that a Florida debtor’s vested interest in her corporation’s Keogh plan was not an exempt asset because she was the sole shareholder and sole participant in the plan. In other words, the plan was not exempt because it did not comply with the Employee Retirement Income Security Act (ERISA). The ruling was then affirmed by the federal District Court and the debtor filed an appeal with the Eleventh Circuit. 

Jeffrey Kuntz of The Florida Legal Blog reports:

In In re Baker: Baker v. Tardif (09-13144-HH), the Eleventh Circuit released a published decision and reversed the decision of the Bankruptcy Court and the District Court. The Eleventh Circuit held that the debtor’s Keogh plan was exempt under Florida law. Fla. Stat. § 222.21(2)(a)(1).

Here’s what the Eleventh Circuit said (emphasis added):

The district court ruled that Baker’s Keogh plan had to be maintained under the Employee Retirement Income Security Act for Baker to claim an exemption under section 222.21(2)(a)(1), but we disagree.

In 2005, the Florida Legislature amended section 222.21 to provide that an exempt plan does not have to comply with the Employee Retirement Income Security Act….

 

We reverse the judgment that Baker’s Keogh plan had to comply with the Employee Retirement Income Security Act to qualify for an exemption under section 222.21(2)(a)(1).

 

Section 222.21(2)(a)(1) requires that a profit-sharing plan qualify under section 401(a) of the Internal Revenue Code, not that the plan comply with the Employee Retirement Income Security Act.

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