Matter of Golz ( 2015 )

November 10 2015
OP 15-0302
Case Number: OP 15-0302
IN THE SUPREME COURT OF THE STATE OF MONTANA
2015 MT 318
IN RE:
CHRISTOPHER COLLIN GOLZ,
Debtor.
ORIGINAL PROCEEDING: Certified Question from the United States Bankruptcy
Court for the District of Montana
Cause No. 14-61350-7
Honorable Ralph B. Kirscher, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
James J. Screnar, Screnar Law Firm; Bozeman, Montana
For Appellee:
Joseph V. Womack, Waller & Womack, P.C.; Billings, Montana
Submitted on Briefs: October 21, 2015
Decided: November 10, 2015
Filed:
__________________________________________
Clerk
Justice James Jeremiah Shea delivered the Opinion of the Court.
¶1 The United States Bankruptcy Court for the District of Montana certified the
following question to this Court:
Whether, under Montana’s liberal construction of exemptions, a debtor
may claim an exemption in an inherited Individual Retirement Account
pursuant to § 25-13-608(1)(e), MCA.
We accepted the certified question and accepted briefs from the Debtor and the Chapter 7
Trustee appointed to the Debtor’s bankruptcy.
¶2 We answer the question: No.
PROCEDURAL AND FACTUAL BACKGROUND
¶3 The following factual background is taken from the undisputed facts related by the
Bankruptcy Court in its certification order:
¶4 Christopher Collin Golz, the Debtor, filed for Chapter 7 Bankruptcy on
December 1, 2014. Joseph V. Womack was appointed Trustee of the case. Golz is 40
years old. He is employed by Simms Fishing Products as a Customer Care
representative. Golz is married; his spouse did not file bankruptcy with him.
¶5 Item number 12 on Golz’s Schedule B (list of personal property) is a
“MorganStanley [sic] IRA. Acct. #319-116461-409” valued at $6,905.65. Golz
inherited the Individual Retirement Account (IRA) from his mother upon her death.
Womack requested and received information from Golz regarding the IRA and learned
that it was an inherited traditional IRA as set forth on the Morgan Stanley Client
Statement. Golz claimed the inherited IRA as exempt property from the bankruptcy
estate. Womack objected to Golz’s claim of exemption.
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¶6 Golz has made no personal contributions to the inherited IRA, and he cannot
invest additional money in the account. Golz is required to withdraw money from the
inherited IRA account no matter how far he is from retirement. Golz may withdraw the
entire balance of the account at any time and use it for any purpose without penalty.
DISCUSSION
¶7 Whether, under Montana’s liberal construction of exemptions, a debtor may claim
an exemption in an inherited Individual Retirement Account pursuant to
§ 25-13-608(1)(e), MCA.
¶8 When a debtor files for bankruptcy, an estate is created consisting of all legal and
equitable property interests of the debtor as of the date of filing. 11 U.S.C. § 541(a)
(2012). A debtor is allowed to exempt certain property from the bankruptcy estate.
11 U.S.C. §§ 541(a)(1), 522 (2012). Property that may be exempt from the bankruptcy
estate is set forth at 11 U.S.C. § 522(d). States may opt out of the federal exemption
statutes pursuant to 11 U.S.C. § 522(b)(2). Montana has opted out of the federal
exemptions. Section 31-2-106, MCA; In re Archer, 2006 MT 82, ¶ 7, 332 Mont. 1,
136 P.3d 563.
¶9 Property that may be exempted in a bankruptcy proceeding in Montana includes
property described in Title 25, chapter 13, part 6, of the Montana Code Annotated.
Section 31-2-106(1), MCA. Relevant to the certified question before us,
§ 25-13-608(1)(e), MCA, provides that debtors may claim exemptions, without
limitation, in “individual retirement accounts, as defined in 26 U.S.C. 408(a), to the
extent of deductible contributions made before the suit resulting in judgment was filed
and the earnings on those contributions . . . .” The Internal Revenue Code defines
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“individual retirement account” as “a trust created or organized in the United States for
the exclusive benefit of an individual or his beneficiaries . . . .” 26 U.S.C. § 408(a)
(2012).
¶10 The U.S. Supreme Court has defined an inherited IRA as “a traditional or Roth
IRA that has been inherited after its owner’s death.” Clark v. Rameker, ___ U.S. ___,
___, 134 S. Ct. 2242, 2245 (2014) (citing 26 U.S.C. §§ 408(d)(3)(C)(ii), 408A(a) (2012)).
“When anyone other than the owner’s spouse inherits the IRA, he or she may not roll
over the funds; the only option is to hold the IRA as an inherited account.” Clark,
___ U.S. at ___, 134 S. Ct. at 2245.
¶11 The Montana Constitution expressly states: “The legislature shall enact liberal
homestead and exemption laws.” Mont. Const. art. XIII, § 5. Montana courts give
liberal construction to exemption laws. Archer, ¶ 15. However, the liberal construction
of a law cannot disregard the plain language of the statute. Archer, ¶ 15.
¶12 Golz argues that, because Montana’s exemption laws are to be interpreted
liberally, an inherited IRA should be exempt like other IRAs under § 25-13-608(1)(e),
MCA. However, in Clark, the U.S. Supreme Court held that inherited IRAs are not
retirement funds exempt from a bankruptcy estate under 11 U.S.C. § 522(b)(3)(C), and
the Court distinguished traditional and Roth IRAs defined in 26 U.S.C. §§ 408(a) and
408A, from inherited IRAs. Clark, ___ U.S. at ___, 134 S. Ct. at 2244-45. In drawing
the distinction, the Court noted that the holder of an inherited IRA may never invest
money in the account under 26 U.S.C. § 219(d)(4) (2012); funds must be withdrawn no
matter how close the holder is to retirement under 26 U.S.C. §§ 401(a)(9)(B), 408(a)(6)
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(2012); and the entire balance of the account may be withdrawn at any time without
penalty under 26 U.S.C. § 72(t)(2)(A)(ii) (2012). Clark, ___ U.S. at ___, 134 S. Ct. at
2247.
¶13 The Montana Legislature also distinguished traditional and Roth IRAs from
inherited IRAs. In § 25-13-608(1)(e), MCA, the Legislature exempted IRAs “as defined
in 26 U.S.C. 408(a)” and Roth IRAs “as defined in 26 U.S.C. 408A.” The Legislature
did not exempt IRAs defined in other subsections of 26 U.S.C. § 408. In Clark, the U.S.
Supreme Court distinguished traditional and Roth IRAs defined in 26 U.S.C. §§ 408(a)
and 408A, from inherited IRAs. Inherited IRAs are not defined in 26 U.S.C. § 408(a) or
§ 408A. Rather, inherited IRAs are financial accounts with distinct legal characteristics
addressed in other sections of Title 26, as outlined above. “In the construction of a
statute, the office of the judge is simply to ascertain and declare what is in terms or in
substance contained therein, not to insert what has been omitted or to omit what has been
inserted.” Section 1-2-101, MCA. Under the plain language of § 25-13-608(1)(e), MCA,
inherited IRAs are not exempt from the bankruptcy estate.
CONCLUSION
¶14 Our answer to the certified question is: No, under Montana law, a debtor may not
claim an exemption in an inherited IRA pursuant to § 25-13-608(1)(e), MCA.
/S/ JAMES JEREMIAH SHEA
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We Concur:
/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ PATRICIA COTTER
/S/ LAURIE McKINNON
/S/ MICHAEL E WHEAT
/S/ JIM RICE
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