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10TH CIRCUIT COURT OF APPEALS RULES DISTRIBUTION OF QUALIFIED PLAN ASSETS EXPOSES THOSE ASSETS TO PLAN BENEFICIARY'S CREDITORS

The United States Court of Appeals for the 10th Circuit (the “Court”) held in In re Gordon1 that Colorado Revised Statutes Section 13-54-102(1)(s) (which provides an exemption for property held in or payable from any pension or retirement plan or deferred compensation plan) does not protect distributions once paid from a retirement plan.

Debtors filed a voluntary petition for bankruptcy. Their assets included a 401(k) account with $16,700 and a savings account containing $2,051 (which represented the balance remaining from a lump-sum distribution from the 401(k) account). Debtors used the 401(k) account proceeds to pay for their living expenses prior to filing for bankruptcy.

Debtors sought to have the remaining cash classified as an exempt asset under Colorado Revised Statutes Section 13-54-102(1)(s). The bankruptcy trustee argued that the exemption did not apply to funds already distributed.

The issue presented before the Court was whether the exemption applied to assets distributed from a retirement plan or was limited to assets held in or payable from a retirement plan.

Debtors asserted that the Colorado legislature did not include any words of limitation when drafting the exemption statute. The Court of Appeals disagreed with Debtors’ assertion by stating that it was the Colorado legislature’s practice to be explicit in the drafting of statutes when certain proceeds are exempt. The Court of Appeals then stated that if the legislature intended to exempt the money received by the Debtors from their retirement plan, the legislature knew precisely how to state its intention.

As a result, in Colorado, assets held in a retirement account are considered to be exempt from creditors. Conversely, once assets have been distributed from a retirement account, they may no longer be claimed as exempt from creditors.


1. 791 F.3d 1182 (10th Cir. 2015).

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