Posts tagged with "exempt"

State Employee Retirement Benefits Payments are Not Exempt from Garnishment by Victims of Violent Crime

State Employee Retirement Benefits Payments are Not Exempt from Garnishment by Victims of Violent Crime

Klingman v. Winters, KNLCV020560881, 2010 WL 5493498 (Conn. Super. Ct. Dec. 8, 2010)

In a case before the Superior Court of Connecticut, a victim of a violent crime sought to have a wage execution enforced against the retirement payments of her convicted assailant in order to collect the awarded judgment. The court found that the claim for a wage execution was valid and enforceable.

The plaintiff was awarded a $240,000 judgment for injuries she sustained from a physical attack by the defendant. The judgment was entered on a four-count complaint claiming negligence, reckless and wanton assault, intentional assault and violation of the Violence Against Women Act of 1995, 42 U.S.C. § 13981, based upon the applicable Connecticut General Statutes. The defendant declared bankruptcy; however, the bankruptcy court found that the plaintiff’s judgment was not subject to bankruptcy exemptions. In its memorandum of decision, the bankruptcy court characterized the attack as “vicious and brutal” and the injuries inflicted as “willful and malicious.”

A wage execution was entered against the defendant and the defendant’s employer, the State of Connecticut, and was paid to the plaintiff until the defendant retired. The plaintiff applied for a new wage execution, which was served on the State and returned by reason of the defendant’s retirement. The State contended that it discontinued payments on the wage execution because the defendant was placed on hazardous duty disability retirement and the execution was impermissible according to Connecticut law prohibiting assignments of state employees’ retirement benefits, Conn. Gen. Stat. § 5-171.

Under Connecticut law, retirement benefits of state employees are intended to support the member or beneficiary who is entitled to those payments; therefore, any assignment of such benefits is “null and void.” Conn. Gen. Stat. § 5-171. These benefits are “exempt from the claims of creditors.” However, if these general provisions are contrary to the law governing a particular circumstance, the law dictates “any payment shall be exempt to the maximum extent permitted by law.” Id. Connecticut law governing the general availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a, exempts “any pension plan, annuity or insurance contract or similar arrangement … established by federal or state statute for federal, state or municipal employees for the primary purpose of providing benefits upon retirement by reason of age, health or length of service” from the claims of all creditors of the plan beneficiary. Conn. Gen. Stat. § 52-321a(a)(5). However, this law also provides a specific exception for victims of violent crime: “Nothing in this section … shall impair the rights of a victim of crime … to recover damages awarded by a court of competent jurisdiction from any federal, state or municipal pension, annuity or insurance contract or similar arrangement … when such damages are the result of a crime committed by [the] participant or beneficiary.” Conn. Gen. Stat. § 52-321a(b).

The plaintiff argued that the defendant’s retirement payments should be garnished pursuant to the Connecticut law governing the availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a. She asserted that this law governed her particular circumstance as a victim of violent crime, and established an exception to the exemption of state employee retirement benefits stated in Section 5-171.

The plaintiff’s argument raises an issue of first impression in the Connecticut. Connecticut appellate courts have not addressed the specific issue of a victim’s right to enforce a withholding order pursuant to law governing the availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a. Discussion of the general applicability of this law has been limited to trial court decisions regarding alimony and child support obligations. These cases have consistently found that pension benefits covered by Section 52-321a are not exempt from income withholding orders. See, e.g., Sinicropi v. Sinicropi, 23 Conn. L. Rptr. 49 (Conn. Super. Ct. 1998); Foley v. Foley, 20 Conn. L. Rptr. 644 (Conn. Super. Ct. 1997).

The court found that the plaintiff was a victim of a crime; therefore, her claim for a wage execution upon the retirement benefits of the defendant fell within the statutory exception of Section 52-321a(b) and constituted a particular circumstance that fell within the statutory exception of Section 5-171. The court ordered that a wage execution may issue against the retirement benefits payments to the defendant by the State of Connecticut.

Should you have any questions relating to personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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Post Petition Divorce Property Settlement May Not Impact Spouses’ Homestead Exemptions in Bankruptcy Court

In re Gasztold, 11-21287, 2011 WL 5075440 (Bankr. D. Conn. Oct. 25, 2011)

In re Gasztold, 11-21287 ASD, 2011 WL 3607903 (Bankr. D. Conn. Aug. 16, 2011)

In two related cases before the United States Bankruptcy Court for the District of Connecticut, the Bankruptcy Court upheld a debtor-wife’s right to claim a homestead exemption in the primary residence that she owned and occupied as of the bankruptcy petition date, even though the post-petition divorce decree required the debtor-husband to buy out her interest in the residence.

In April 2011, the debtor-husband and debtor-wife jointly filed a petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The debtors listed their jointly owned marital residence as a real property asset. Pursuant to 11 U.S.C.§ 522(b)(3), they claimed personal exemptions in accordance with Connecticut state law, including a homestead exemption of $125,900 for the unencumbered fair market value of marital residence. See Conn. Gen. Stat. § 52-352b(t).

In May 2011, after filing the bankruptcy petition, the debtors divorced. The property settlement under the state court judgment of dissolution provided that the debtor-husband obtain financing and pay the debtor-wife $62,950 for the value of her one-half interest in the marital residence and, upon payment, the debtor-wife quitclaim her interest in the property to the debtor-husband. The settlement further provided that if the debtor-husband was unable to obtain financing, the couple would sell the property and divide the proceeds.

In August 2011, the Chapter 7 trustee filed an objection to the debtor-wife’s claim of a homestead objection. The trustee also filed a motion to compel filing of a supplemental schedule by the debtor-wife to capture the cash payment from her husband that was ordered in the property settlement to liquidate her interest in the residence.

In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own[ ]” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).

The Bankruptcy Court established that the “relevant time” for determining entitlement to an exemption is the date that the bankruptcy petition was filed. At that time, the debtor-wife owned the property, occupied the property, and used the property as her primary residence. Therefore, her interest in the property satisfied the requirements for her to be entitled to a homestead exemption. Because this entitlement existed as of the petition date, the Bankruptcy Court overruled the Chapter 7 trustee’s objection to the debtor-wife’s homestead exemption.

The Chapter 7 trustee also argued that the cash payment to the debtor-wife required by the property settlement after the petition date was a new asset and, therefore, must be included in the debtor-wife’s estate. According to the federal bankruptcy code, the estate subject to bankruptcy proceedings includes any interest in property that would have been property of the estate “if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date…as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree. 11 U.S.C. § 541. However, the Bankruptcy Court concluded that the cash payment that the debtor-wife received to liquidate her interest in the marital residence was not a new asset acquired after the initiation of bankruptcy proceedings; the court characterized this payment as the proceeds of her exempt interest in the marital residence, which had been included and subsequently withdrawn from the estate. The property settlement did not alter the net value of the debtor-wife’s post-petition assets and liabilities, only the form of such interests. The Bankruptcy Court concurred with the majority of courts, holding that property exempted from the estate after the petition date does not re-enter the estate as a result of having changed form, even if the property in its new form may not be entitled to a state law exemption. Although the Connecticut exemption statutes initially determine whether, as of the petition date, a debtor’s interest in property is exempt from the claims of pre-petition creditors, the federal bankruptcy code protects the exempt property from these claims. 11 U.S.C. § 502. Because the settlement agreement did not add assets to the debtor-wife’s estate, the Bankruptcy Court denied the Chapter 7 trustee’s motion to compel a supplemental filing.

Based on common law, Connecticut statutory law and federal bankruptcy law, the Bankruptcy Court determined that the debtor-wife’s ownership, occupation and use of the marital residence prior to filing the bankruptcy petition was sufficient to entitle her to a homestead exemption for this interest and, once exempted from the bankruptcy estate, this interest could not re-enter the estate even if it changed form from real property to cash.

Should you have any questions relating to marital, bankruptcy or asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.
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Connecticut Homestead Exemption Requires Actual Occupation of the Property, Not Merely “Intent to Occupy”

Connecticut Homestead Exemption Requires Actual Occupation of the Property, Not Merely “Intent to Occupy”

In re Taliercio, 11-51732, 2012 WL 441421 (Bankr. D. Conn. Feb. 10, 2012)

In a recent case before the United States Bankruptcy Court for the District of Connecticut, the Chapter 7 trustee objected to an aggregate homestead exemption claimed by debtors for property that they owned, but did not occupy, at the time they filed for bankruptcy. The court sustained the objection and denied the homestead exemption.

In August 2010, SunTrust Bank (“SunTrust”) commenced a foreclosure action against a property owned in Norwalk, Connecticut by a married couple (“the debtors”). The debtors and their children resided at this property as their primary residence until January 2011, when they rented the property to a third party for one-year under the terms of a residential lease.

Prior to the foreclosure sale in August 2011, the debtors filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The debtors testified that when they filed for bankruptcy relief they were residing with a relative at a street address other than the property being foreclosed upon. Pursuant to 11 U.S.C.§ 522(b)(3), the debtors amended their bankruptcy filing to claim personal exemptions allowed by Connecticut state law. Among the exemptions was a $150,000 aggregate homestead exemption. See Conn. Gen. Stat. § 52–352b(t) (2009). The trustee objected to the homestead exemption.

In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).
The issue before the Bankruptcy Court was whether the debtors occupied the property within the meaning of Connecticut General Statute § 52–352a. Neither party disputed that the debtors owned the property; likewise, the Chapter 7 petition evidenced that the debtors were not using the property as their “primary residence” on the date of the filing of their petition.

The debtors argued that the word “occupy” must be broadly construed. They claimed that, even though they were not occupying the property, it was a temporary situation because they intended to move back when the one-year lease expired. The debtors testified that the property was rented solely because the family was experiencing financial problems. Finally, the debtors argued that they had not completely surrendered occupation of the property because they reserved the right to access storage areas in the attic and the basement to retrieve stored personal property during the term of the lease. However, this access agreement was not contained in the lease and was contrary to an explicit lease provision granting the renters quiet enjoyment of the property.

The Bankruptcy Court held that the essence of a “homestead” would be nullified if they construed the requirement to “occupy” to include an “intention to occupy.” Even if the debtors were permitted to access areas of the property, they had given up the right to use the property as a home eight months before they filed their Chapter 7 case. Therefore, the debtors no longer occupied the property in the sense required by Connecticut statutory and common law.

Because the Bankruptcy Court found that the debtors did not occupy the property when they filed for bankruptcy protection, the property did not satisfy the tripartite requirements to classify for a homestead exemption in Connecticut. Therefore, the court sustained the trustee’s objection to the claimed homestead exemption.

Should you have any questions relating to bankruptcy or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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Owners of a Limited Liability Company Cannot Claim Homestead Exemption for Real Property Held by the LLC

Owners of a Limited Liability Company Cannot Claim Homestead Exemption for Real Property Held by the LLC

In re Kochman, 11-50111, 2011 WL 5325792 (Bankr. D. Conn. Nov. 3, 2011)

In a case before the United States Bankruptcy Court for the District of Connecticut, the Chapter 7 trustee objected to an aggregate homestead exemption claimed by the debtors for property owned by a limited liability company that they controlled at the time of the bankruptcy filing. The court sustained the objection and denied the homestead exemption.

The debtors were joint owners of Kochman Holdings Group, LLC (“the LLC”), which was a single asset real estate holding company established to hold title to a two-story building in West Cornwall, Connecticut. The first floor of the building was used by the debtors to conduct their respective businesses. A portion of second floor of the building was used as the debtors’ residence, and the remainder of the second floor was used for unspecified personal and business purposes.
In January 2011, the debtors filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The petition listed their street address as the address of the building owned by the LLC. Pursuant to 11 U.S.C.§ 522(b)(3), the debtors listed personal exemptions allowed by state law, including an aggregate homestead exemption for their primary residence. See Conn. Gen. Stat. § 52-352b(t) (2009). The debtors calculated the value of their exemption to be approximately $88,000, which was the total net equity in the building owned by the LLC. The trustee objected to the homestead exemption.

In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own[ ]” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).

The exemptions afforded by Section 52-352a only apply to the property of persons, not artificial entities. Shawmut Bank, N.A. v. Valley Farms, et al., 222 Conn. 361, 366 (1992). When a person elects to own assets through an artificial entity for a legal advantage, such as limiting personal liability, he must accept the corresponding legal disadvantage arising from the limitation of Section 52-352a. Id.

The debtors admitted that the property for which they were claiming a homestead exemption was owned by the LLC. However, the debtors argued that the equitable doctrine of reverse piercing of the corporate veil should be applied so that they, as sole joint owners of the LLC, could be considered owners of the property for the purposes of claiming the homestead exemption. The debtors testified that forming an LLC and putting legal title to the property in the name of the LLC were good faith technical transactions that they executed upon the advice of their attorney with no understanding of the implications.

The Bankruptcy Court rejected the debtors’ argument. In recommending an LLC to hold title to the property, the debtors’ attorney fully understood that the benefits of such an arrangement included preventing the debtors’ individual creditors from reaching the property. An individual cannot place ownership of a property in an artificial entity so as to be unreachable by his individual creditors, and then later assert ownership of the property so as to be entitled to claim a homestead exemption in it. The court reinforced precedent by asserting that when an individual choose to take advantage of the benefits of an artificial entity, he must also bear the corresponding burdens. Because the LLC, and not the debtors, owned the property, the Bankruptcy Court found no basis for the debtors to claim a homestead exemption.

The Bankruptcy Court made the additional finding that, even if the debtors were entitled to claim a homestead exemption, the claim of $88,000 was “patently objectionable” because it represented the entire net equity in the property. Only the net equity in the portion of the property used as a primary residence could be claimed as a homestead exemption. Because the record contained no evidence as to the value of the residential portion, the Bankruptcy Court would be unable to calculate the value of the homestead exemption, had the exemption been allowed.

Because the Bankruptcy Court found that the debtors did not own the property at the time they filed for bankruptcy protection, they could not claim a homestead exemption in the property. Therefore, the court sustained the trustee’s objection to the claimed homestead exemption.

Should you have any questions relating to bankruptcy or asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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Trusts Created For Personal Benefit Are Not Exempt From Judgment Creditors

Trusts Created For Personal Benefit Are Not Exempt From Judgment Creditors

Estes v. Crowley, FSTCV114021004S, 2011 WL 5841857 (Conn. Super. Ct. Oct. 26, 2011)

In a case before the Superior Court of Connecticut, a judgment creditor objected to the debtor’s claim of exemption for a bank account that was standing in the name of a family living trust. The court sustained the objection and denied the exemption.

In July 2011, a judgment was entered for Karl Estes, as the custodian of the Karl G. Estes IRA, (“judgment creditor”) against Timothy Crowley (“debtor”). The Superior Court of Connecticut issued an execution that was served upon the bank where the debtor maintained a “High Yield Consumer Savings Account” in the name of his family living trust. The total balance of the account was removed toward satisfying the judgment, in accordance with Conn. Gen. Stat. § 52-367b(c) (2009). The debtor then filed a claim of exemption, classifying the account as a “private pension, trust, retirement or medical savings account” under Conn. Gen. Stat. §§ 52-321a, 52-352b(m) (2009).

According to the living trust agreement establishing the debtor’s family living trust, the debtor and his wife were both grantors and trustees of the trust. The trust was for the benefit of the two grantors and their children. The trust was divided into two grantor’s separate shares, one for each grantor, and each share consisted of an undivided one-half beneficial interest in the trust assets. During the lives of both grantors, all distributions of income and principal from the trust estate would be made one-half from each grantor’s separate share. During their joint lifetimes, the trustees had the power to pay to or apply all or part of the principal and income of each grantor’s separate share for the benefit of each grantor. The majority of the funds in the family living trust were from an IRS refund issued in connection with the debtor and his wife’s joint federal income tax return.

Connecticut law exempts any “assets or interests of an exemptioner in, or payments received by the exemptioner from, a plan or arrangement described in Section 52-321a.” Conn. Gen. Stat. §§ 52–352b(m). However, the statute that describes which assets are unavailable to creditors, Conn. Gen. Stat. §52–321a, limits the definition to trusts or other instruments that were established as part of retirement plans or other plans qualified under various sections of the Internal Revenue Code. Such plans are “conclusively presumed to be a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under the laws of this state.” Id. The court found that the family living trust at issue was not a plan or arrangement described by the relevant statutes and, therefore, was not entitled to exemption from a judgment creditor on these bases.

In the alternative, the debtor argued that even if the family living trust was not entitled to exemption, the income could not be subjected to claims of creditors based on Section 52-321(a). This statute states that non-exempt income can be subject to the claims of creditors of a beneficiary only “if the property has been given to trustees to pay over the income to any person without provision for accumulation or express authorization to the trustees to withhold the income.” The debtor argued that, given the powers of the trustees as defined in the living trust agreement, the trust income could not be subjected to the claims of creditors; therefore, the income must be exempt.

The court reached the opposite conclusion and held that the cited statute does not apply to the living trust at issue, because it was a discretionary trust established by grantors for their own benefit. As a matter of public policy, this family living trust cannot enjoy the exemption afforded to a spendthrift trust; and as a matter of statutory interpretation, the exceptional provisions governing the liability of the income of trust find to creditors does not apply to the income of this trust. Conn. Gen. Stat. § 52–321(a). Connecticut common law has interpreted the statutory predecessor of Section 52-321(a) to mean that a trust created by a person for his own benefit cannot qualify as a “spendthrift trust” that is beyond the reach of his creditors. See Greenwich Trust Company v. Tyson, 129 Conn. 211, 219 (1942). The income generated by such a trust is also not protected from the just claims of creditors. Id. at 222.
The court denied the debtor’s claim of exemption, and permitted the amount removed from the bank account standing in the name of the family living trust to be applied to the satisfaction of the judgment held by the judgment creditor.

Should you have any questions relating to living trusts or other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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