Filed: Sep. 02, 2003
Latest Update: Mar. 02, 2020
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ No. 03-6008 MN In re: Dale G. Martin and * Shirley R. Martin, * * Debtors. * * Dale G. Martin and * Appeal from the United States Shirley R. Martin, * Bankruptcy Court for the * District of Minnesota Debtor - Appellants. * * * v. * * Paul W. Bucher, * * Trustee - Appellee. * * _ Submitted: August 19, 2003 Filed: September 2, 2003 _ Before, HILL, SCHERMER, and FEDERMAN, Bankruptcy Judges. _ FEDERMAN, Bankruptcy Judge. _ The Chapt
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ No. 03-6008 MN In re: Dale G. Martin and * Shirley R. Martin, * * Debtors. * * Dale G. Martin and * Appeal from the United States Shirley R. Martin, * Bankruptcy Court for the * District of Minnesota Debtor - Appellants. * * * v. * * Paul W. Bucher, * * Trustee - Appellee. * * _ Submitted: August 19, 2003 Filed: September 2, 2003 _ Before, HILL, SCHERMER, and FEDERMAN, Bankruptcy Judges. _ FEDERMAN, Bankruptcy Judge. _ The Chapte..
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United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
_____________
No. 03-6008 MN
In re: Dale G. Martin and *
Shirley R. Martin, *
*
Debtors. *
*
Dale G. Martin and * Appeal from the United States
Shirley R. Martin, * Bankruptcy Court for the
* District of Minnesota
Debtor - Appellants. *
*
*
v. *
*
Paul W. Bucher, *
*
Trustee - Appellee. *
*
_____________
Submitted: August 19, 2003
Filed: September 2, 2003
_____________
Before, HILL, SCHERMER, and FEDERMAN, Bankruptcy Judges.
_____________
FEDERMAN, Bankruptcy Judge.
_____________
The Chapter 7 trustee objected to debtors Dale and Shirley Martin’s claim of
exemption for an annuity with a present value of $29,000. The bankruptcy court1
sustained the objection and the Martins appeal that order. We affirm.
FACTUAL BACKGROUND
Debtors are self-employed farmers who also have non-farming occupations. At
some point in time, Ms. Martin’s parents conveyed to her a remainder interest (the
Remainder Interest) in certain land. The Martins farmed and resided on their own
property, and they also farmed the land identified in the Remainder Interest. Before
filing for bankruptcy relief, Ms. Martin liquidated one of her retirement accounts and
used the proceeds to prevent a foreclosure on the farm she and Mr. Martin own. She
also sold to her son the Remainder Interest. Ms. Martin used the proceeds from that
sale to purchase an annuity with a present value of $29,000 and an effective date of
February 1, 2002. On February 5, 2002, the Martins filed a Chapter 7 bankruptcy
petition. On May 7, 2002, debtors received a discharge.
The Chapter 7 trustee objected to the claim of exemption. On February 10,
2003, the bankruptcy court held a hearing on the trustee’s objection, and on February
11, 2003, the court sustained the objection. Debtors filed this timely appeal.
STANDARD OF REVIEW
The right of debtors to claim exemptions are questions of law subject to de
novo review.2
1
The Honorable Gregory F. Kishel, Chief Judge, United States Bankruptcy Court for the
District of Minnesota.
2
Kaelin v. Bassett (In re Kaelin), 271 B.R. 316, 320 (B.A.P. 8th Cir. 2002), reversed on other
grounds,
308 F.3d 885 (8th Cir. 2002); Anderson v. Seaver (In re Anderson),
269 B.R. 27, 29 (B.A.P.
8th Cir. 2001); Abernathy v. LaBarge (In re Abernathy),
259 B.R. 330, 332 (B.A.P. 8th Cir. 2001).
2
DISCUSSION
Relying on Deretich v. City of St. Francis3 and In re Anderson,4 the bankruptcy
court found that the annuity was not exempt because the assets used to purchase it did
not derive directly from the debtor’s employment, and could not be traced to the
ongoing generation of income.5 The bankruptcy court stated that the exemption only
applied to assets that resulted from a debtor’s decision to defer the enjoyment of
earned income, whether that income be from self employment or from third-party
employment. It also found that the annuity at issue here was not funded from ongoing
income; rather, it was funded by the liquidation of a capital asset. The court, thus,
sustained the trustee’s objection.
The Martins argue that the funds used to purchase the annuity were derived
from the sale of a Remainder Interest in property that was used in their farming
operation, therefore, the funds were generated by a self-employment endeavor.
In Minnesota debtors may elect to use either the exemptions set forth in the
Bankruptcy Code or the exemptions allowed under Minnesota’s state statutes.6 The
Martins elected to use state exemptions. They claimed the annuity to be exempt
pursuant to section 550.37 of Minnesota’s Statutes Annotated. That statute permits
debtors to exempt an annuity from the claims of creditors provided the annuity is “on
account of” illness, disability, death, age, or length of service:
3
128 F.3d 1209 (8th Cir. 1997).
4
269 B.R. 27 (B.A.P. 8th Cir. 2001).
5
Appellant’s Appendix, Transcript of February 10, 2003, Hearing, at A-94 (citing Anderson,
269 B.R. at 31 and
Deretich, 128 F.3d at 1212)).
6
Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 887 n. 2 (8th Cir. 1997); 11 U.S.C. 522(d);
11 U.S.C. § 522(b)(2).
3
(1) The property mentioned in this section is not liable to attachment,
garnishment, or sale on any final process, issued from any court.
...
(24) Employee benefits. (a) The debtor's right to receive present or
future payments, or payments received by the debtor, under a stock
bonus, pension, profit sharing, annuity, individual retirement account,
Roth IRA, individual retirement annuity, simplified employee pension,
or similar plan or contract on account of illness, disability, death, age,
or length of service, to the extent of the debtor's aggregate interest under
all plans and contracts up to a present value of $30,000 and additional
amounts under all the plans and contracts to the extent reasonably
necessary for the support of the debtor and any spouse or dependent of
the debtor.7
The text of the statute simply states that an annuity is exempt. The heading of the
statute, however, while not part of the statute, may be used to indicate what benefits
the Minnesota legislature intended to exempt.8 The benefits that debtors may claim
under this statute are, therefore, those derived from an employment relationship or a
self-employment endeavor.9 Moreover, the court in In re Raymond found that the
Minnesota legislature intended this statute to apply to annuities that derived from
wages earned by the debtor and contributed by either the employer, the employee, or
7
Minn. Stat. Ann. § 550.37(24)(a) (Supp. 2003).
8
In re Raymond, 71 B.R. 628, 630 (Bankr. D. Minn. 1987).
9
Id. See also Westinghouse Credit Corporation v. J. Reiter Sales, Inc.,
443 N.W.2d 837, 839
(Minn. Ct. App. 1989) (stating that in order to be exempt, the employee benefits must derive from
contributions based upon wages).
4
a self-employed person.10 In addition, the annuity must be payable on account of
illness, disability, death, age, or length of service.11
The Eighth Circuit construed this same statute in Deretich v. City of St.
Francis.12 It found that the statute only applied to assets that derived directly from the
debtor’s employment.13 Likewise, we construed this same exemption statute in In re
Anderson.14 In so doing, we affirmed the bankruptcy court’s holding that a debtor’s
interest in an IRA was not exemptible if he derived the interest from a property
settlement in a dissolution proceeding rather than from his own employment.15 The
Martins attempt to distinguish both of these cases. They argue that the parties were
not self employed in Deretich. And they argue that, even though the debtor was self
employed in Anderson, the IRA at issue was issued in his wife’s name and, therefore,
derived from her efforts, not the joint efforts of both parties. Here the Martins claim
that as self-employed farmers, the funds used to purchase the annuity derived from
a self-employment endeavor.
Thus, there are two issues before us. First, we must decide whether the sale of
a capital asset is a self-employment endeavor. If so, we must decide if the sale was
on account of illness, disability, death, age, or length of service.
10
Raymond, 71 B.R. at 630.
11
Id.
12
128 F.3d 1209 (8th Cir. 1997).
13
Id. at 1212.
14
269 B.R. 27 (B.A.P. 8th Cir. 2001).
15
Id. at 31.
5
In Westinghouse Credit Corporation v. J. Reiter Sales, Inc.,16 the court refused
to allow a self-employed general insurance agent to exempt the funds in his unfunded
and unqualified deferred compensation plan.17 The court found that the plan did not
meet the requirements of the Internal Revenue Service because the money was not set
aside in a trust or custodial account. Since the funds were, thus, available to the
employer at all times, they were not exempt.18 The court also denied the exemption
based upon the fact that the funds did not derive from contributions based upon
wages.19 There is no evidence that the Martins ever segregated the funds used to
purchase this annuity.
In re Raymond20 is most instructive here because it also deals with funds that
derived directly from the sale of capital assets. The debtor, who was 73 years old, and
his non-debtor wife purchased an annuity with a value of $19,000 on the same day
debtor filed a Chapter 7 bankruptcy petition.21 Debtor sold his automobile and stock
in order to generate the funds to purchase the annuity, which he then claimed as
exempt. The court held that the funds used to purchase the annuity were not directly
derived from an employment relationship or a self-employment endeavor, therefore,
the annuity was not exempt.22 In reaching this decision, the court agreed that the
assets used to purchase the annuity could ultimately be traced to the fruits of the
debtor’s labors, but found that such tracing is allowed only when the source itself is
16
443 N.W.2d 837 (Minn. Ct. App. 1989).
17
Id. at 838.
18
Id.
19
Id. at 839 (citing In re Schuette,
58 B.R. 417, 422 (Bankr. D. Minn. 1986)).
20
71 B.R. 628 (Bankr. D. Minn. 1987).
21
Id. at 629.
22
Id. at 630.
6
exempt.23 As the court stated, “[t]o allow an exemption simply because the money
used to purchase the annuity was at one time earned income stemming from an
employment relationship or self employment endeavor would only create an
exemption which would swallow the entire rule.”24 In this case, Ms. Martin’s
Remainder Interest would not have been an exempt asset. Moreover, Ms. Martin’s
parents conveyed this interest to her, so the Martins did not purchase the interest with
their earned income. We, therefore, conclude that the bankruptcy court correctly
construed this Minnesota statute. The proceeds of the sale of a capital asset are not
an employee benefit. Because we conclude the funds used to purchase the annuity
were not an employee benefit, we need not reach the issue of whether the annuity was
purchased on account of illness, disability, death, age, or length of service.
For the reasons stated above, we affirm the legal conclusions of the bankruptcy
court.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT
23
Id.
24
Id.
7
