Protection tool

Private pension plans as a tool for protecting assets heard in the event of bankruptcy | Greenberg Glusker LLP

After years of hard work and planning, or perhaps thanks to the timely entry into an emerging market, your business is booming. With day-to-day operations running smoothly, you begin to think about how best to plan ahead to protect your newly accumulated capital in a landscape of ever-changing consumer tastes and great uncertainty. The sheer number of asset protection measures can seem daunting, ranging from the perplexities of spending trusts to the somewhat questionable practice of offshore accounts. An often overlooked asset protection option is setting up a private pension plan through your business.

Section 704.115 of the California Code of Civil Procedure (“CCP”) exempts “”[a]ll amounts held, controlled or in the process of being distributed by a private pension plan ”. CCP § 704.115 (b). Amounts held in “[p]private pension plans “” established or maintained by private employers “, including” private companies “, are fully exempt from the levy. CCP § 704.115 (a) (1) & (b).

For a private pension plan to be considered exempt under article 704.115 of the CCP, the plan must be “designed and used primarily for retirement purposes. “[1] Even a private pension plan “used in part to protect assets is still exempt” if it meets this basic requirement. Identifier.

Determining whether a private pension plan is designed and used primarily for retirement purposes is a factual inquiry and the courts consider all of the circumstances.[2] All factors must be taken into account and none are decisive.[3] The relevant factors are as follows:

  1. The “subjective intention of the debtor” in the design and use of the plan or account.
  2. the “timeline” or timing of the creation of the plan or account relative to other events.
  3. the degree of control the debtor has “over contributions, management, administration and use of funds” in the plan or account.
  4. if the debtor has violated or complied with Internal Revenue Service (IRS) rules or plan rules by contributing to the plan.
  5. if the debtor withdraws money from the plan or account, whether those funds were used for retirement or for other purposes unrelated to retirement.[4]

As long as a private pension plan is designed and used primarily for retirement purposes and meets the above criteria, the private pension plan will be fully exempt under California law, even if it is established solely for the benefit of of the principal of a company. As such, it is an effective tool for constituents who wish to protect their assets today for an uncertain future.

[1] About Rucker, 570 F.3d 1155, 1160 (9th Cir. 2009) (emphasis in original); see also Yaesu Elecs. Corp. vs. Tamura, 28 cal. App. 4th 8, 14 (1994).

[2] O’Brien v. AMBS Diagnostics, LLC, 38 Cal.App.5e 553 (2019); Rucker, 570 F.3d at 1161.

[3] In Bloom 839 F.2d, 1376, 1379-80 (9th Cir. 1988).

[4] O’Brien, 38 Cal.App. 5th to 561 (list of factors and authorities that apply each).