Menu    1 ABR 528 

HERBERT A. ROSS
U.S. Bankruptcy Judge


UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ALASKA
605 West 4th Avenue, Room 138, Anchorage, AK 99501-2296


______________________________x

In re

CHERYL L. HENDERSON,

Case No. F89-00525-HAR

 Chapter 7

Debtor(s).                      


MEMORANDUM DECISION DENYING
OBJECTION TO EXEMPTIONS

______________________________x


Subject Page
1. BACKGROUND, PROCEDURE AND HOLDING 528
2. CSRS BENEFITS AWARDED DEBTOR IN HER DIVORCE 529
3. DEBTOR'S PERS BENEFITS 533
4. CHILD SUPPORT OWED DEBTOR 535

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  Contents           1.    BACKGROUND, PROCEDURE AND HOLDING - Debtor filed a chapter 7 petition on May 17, 1989. She elected the Alaska state exemptions on her Schedule B-4 under § 522(b)(2)(A) of the Bankruptcy Code (11 U.S.C. § 522(b)(2)(A)) and AS 09.38, including: (a) an interest in "Annuities" under AS 09.38.025, and (b) an interest in "PERS (retirement)" under AS 09.38.015(b) and .017. No mention was made in the schedules that Debtor's ex-husband owed her TOP    1 ABR 529  child support which Victor Rentschler, an unsecured creditor, claims amounts to $15,000. The ex-husband has filed his own chapter 7 proceeding subsequent to Debtor's.

        Victor Rentschler filed objections to the exemptions. Debtor argues that the Rentschler objections are untimely under Bankruptcy Rule 4003(b). For the purpose of this decision, I will treat the objections as timely.

        The three significant assets which Rentschler claims are not exempt are: (a) Debtor's Alaska Public Employees Retirement System (PERS) benefits; (b) her share of the U.S. Civil Service Retirement System (CSRS) benefits she received in her divorce from her ex-husband, and (c) unpaid child support owed to Debtor by her ex-husband. There were some other objections about an inconsequential amount of household goods which the parties indicated would be dropped because they involve immaterial property.

        The court denies the objectionss raised by Rentschler regarding these three assets.

  Contents           2.    CSRS BENEFITS AWARDED DEBTOR IN HER DIVORCE - Debtor has an interest in her ex-husband's CSRS benefits. She received it under a qualified domestic relations order (QDRO) in a divorce decree entered on August 1, 1988 in Cheryl Lea Henderson v. Michael William Henderson, Case No. 4FA-88-1091 Civ., in the Superior Court for the State of Alaska, Fourth Judicial District at Fairbanks.

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        Rentschler claims that this is not protected by the CSRS anti-assignment provisions. He argues that the statute only protects the government employee, not a QDRO recipient. The statute protecting a federal employee's CSRS interest is 5 U.S.C. § 8346(a) which provides:

        (a) The money mentioned by this subchapter is not assignable, either in law or equity, except under the provisions of subsections (h) and (j) of section 8345 of this title, or subject to execution, levy, attachment, garnishment, or other legal process, except as otherwise may be provided by Federal laws.
In 1978, Congress passed P.L. 95-366 which provided protection for divorced spouses of civil service employees. This section is codified as 5 U.S.C. § 8345(j):
        (j)(1) Payments under this subchapter which would otherwise be made to an employee, Member, or annuitant based upon his service shall be paid (in whole or in part) by the Office to another person if and to the extent expressly provided for in the terms of any court decree of divorce, annulment, or legal separation, or the terms of any court order or court-approved property settlement agreement incident to any court decree of divorce, annulment, or legal separation. Any payment under this paragraph to a person bars recovery by any other person.

        (2) Paragraph (1) shall only apply to payments made by the Office under this subchapter after the date of receipt in the Office of written notice of such decree, order, or agreement, and such additional information and documentation as the Office may prescribe.

        (3) As used in this subsection, "court" means any court of any State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the Virgin Islands, and any Indian court.

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        The parties have cited no cases which discuss the precise question of whether a spouse's interest in a CSRS benefit under a domestic relations order is protected by § 8346(a). They interpret the statutes differently: (1) Rentschler's interpretation is that the anti-alienation language only covers the employee and once the QDRO is enforced, § 8346(a) does not apply; and, (2) Debtor's interpretation is that she is covered by the anti-alienation provision. Debtor's interpretation appears more in line with the legislative history and the literal wording of the statute. Senate Report No. 95-1084 to P.L 95-366 said:
        Approximately 4 million individuals rely on the civil service retirement system for retirement benefits. However, the retirement system fails to provide economic protection to the former spouse of a Federal employee. Such a failure, in many cases, leaves the dependent spouse with no direct retirement benefits despite many years of working without compensation, managing a home, raising children, and contributing time and effort to the joint marital enterprise.
1978 U.S. Code Cong. and Adm. News, p.1379, 1380. The intent is to protect the retirement of the non-federal spouse. Making the spouse's interest subject to levy is inconsistent with this intent.

        A literal reading of the statute does not support Rentschler's interpretation. § 8346(a) provides in part that the money payable under CSRS is non-assignable, except as provided by § 8345(h) and (j), but it also provides such payments (without reference to whether they have been assigned under a domestic relations order under § 8345(j) or not) are not subject to levy, attachment, garnishment or other legal process. The fact that a
TOP    1 ABR 532  portion of the CSRS benefit has been assigned by virtue of the QDRO in Debtor's divorce from her federal employee ex-husband, does not ipso facto negate the other protections of the § 8346(a) protecting her share of the CSRS benefits from liens, execution, or garnishment. Where a statute is plain on its face, it should be enforced according to its terms. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235; 109 S. Ct. 1026, 1030-31 (1989).

        In addition, I have reviewed the regulatory scheme set up by the Office of Personnel Management found in 5 CFR § 831.1701 dealing with interpretation and effectuation of domestic relations orders. The regulations provide for carving out a portion of the benefit, and payment of that portion to the retiree's spouse pursuant to the domestic relations order. Payment must await the retiring spouse's reaching retirement pay status. 5 CFR § 831.1706(a).

        Debtor has selected the state exemptions. § 522(b)(2)(A) of the Bankruptcy Code (11 U.S.C. §522(b)(2)(A)) allows Debtor to exempt from the property of the estate property which is exempt under state law or "any property that is exempt under Federal law, other than subsection (d) of this section [the federal set of exemptions]." The federal exemption laws which are available to a debtor who chooses the state exemptions include CSRS benefits. See Senate Report No. 95-989, at p. 360, to P.L. 95-598, the Bankruptcy Reform Act of 1978. Debtor's share of the CSRS benefits is thus exempt.

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        It is also possible that Debtor's interest in the CSRS benefits is not even property of the bankruptcy estate. "Property of the estate" is a broadly inclusive term under § 541(a) of the Bankruptcy Code, but it does exclude spendthrift trusts. § 541(c)(2) provides:

A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
This provision has been interpreted in the Ninth Circuit to refer to spendthrift trusts under applicable state law. In re Daniel, 771 F.2d 1352, 1360 (9th Cir. 1985). While there are no cases in Alaska regarding spendthrift trusts, the Ninth Circuit recently held, in interpreting Oregon and Massachusetts law, that an ERISA plan qualified as a spendthrift trust. In re Kincaid, 917 F.2d 1162 (9th Cir. 1990). See also SSA Baltimore Federal Credit Union v. Bizon, 42 B.R. 338 (D.Md. 1984).

  Contents           3.    DEBTOR'S PERS BENEFITS - Rentschler argues that Debtor's PERS account is not property covered by AS 09.38.055, entitled "Bankruptcy Proceedings," which provides:

        In a proceeding under 11 U.S.C. (Bankruptcy) only the exemptions under AS 09.38.010, 09.38.015(a), 09.38.017, 09.38.020, 09.38.025 and 09.38.030 apply.
This statute does not directly incorporate the statute exempting PERS benefits, AS 09.38.015(b), entitled "Property exempt without limitation," which reads:
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        (b) The right to benefits held by the state on behalf of an individual which may become payable by reason of disability, unemployment or illness, amounts held in the teachers' or public employees' retirement system, and child support collections made by the child support enforcement agency are exempt.
        A statute that is mentioned in AS 09.38.055, namely, AS 09.38.017, however does itself refer to the statute exempting PERS, AS 09.38.015(b). AS 09.38.017 states:
        (a) In addition to the exemption under AS 09.38.015(b), the following are exempt from a claim of an individual's creditor: (1) the interest of the individual in a retirement plan; and (2) the money or other assets payable to the individual from a retirement plan.

        (b) The exemptions provided by (a) of this section do not apply to a contribution made by an individual to a retirement plan within 120 days before the individual files for bankruptcy.

        (c) The exemptions provided by (a) of this section do not prevent the payment of benefits under a retirement plan to an alternate payee under a qualified domestic relations order. In this subsection, "qualified domestic relations order" has the meaning given in 26 U.S.C. 414(p).

        (d) A retirement plan exempt from claims under (a) of this section is conclusively presumed to be a spendthrift trust under this section.

       (e) In this section, (1) "alternate payee" has the meaning given in 26 U.S.C. 414(p)(8); (2) "individual" means an individual who is a participant in, a beneficiary of, or an alternate payee of a retirement plan; (3) "retirement plan" means a retirement plan that is qualified under 26 U.S.C. 401(a), 26 U.S.C. 403(a), 26 U.S.C. 403(b), 26 U.S.C. 408, or 26 U.S.C. 409 (Internal Revenue Code).

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Thus, in a roundabout way, AS 09.15.015(b) is incorporated into the bankruptcy exemption statute, AS 09.38.055, and the PERS account was exempted when Debtor selected the state exemptions.

        Even if the PERS benefits were not incorporated into AS 09.38.055, it is likely they would qualify as a spendthrift trust, and be excluded as property of the estate as discussed with respect to the CSRS benefits.

  Contents           4.    CHILD SUPPORT OWED DEBTOR - Debtor argues that child support arrearage of $15,000 owed her by her ex-husband is not property of the estate. Rentschler claims child support is awarded to the parent, and should be included as property of the estate. Rentschler states that if it is the child's property, the parent could only spend the income. He cites AS 25.20.040, which provides:

        If a minor who has a parent living has property from which income is sufficient for maintenance and education in a manner more expensive than the parent can reasonably afford, considering the situation of the parent's family and all the circumstances of the case, the expenses of the minor's maintenance and education may be defrayed out of the income of the property, in whole or in part, as judged reasonable by the court. The expenses may be allowed accordingly in the settlement of the accounts of the minor's guardian.
        The reported cases under the Bankruptcy Code that I have discovered which discuss whether child support owed to a debtor is property of the bankruptcy estate hold that it is not. In re Welch, 31 B.R. 537 (Bankr.D.Kans. 1983), applying Kansas law, held that child support was not property of the estate under § 541(b) of TOP    1 ABR 536  the Bankruptcy Code (property of the estate does not include a power that debtor may exercise solely for the benefit of another entity), and In re Zimmerman v. Starnes, 35 B.R. 1018 (D.Colo. 1984), applying California and Colorado law. Alaska law seems to be similar. The gloss from the Alaska cases is that the award is not property of the custodial parent, but property entrusted to the custodial parent for the benefit of the child. In fact, the custodial parent may have a court ordered support obligation to the child also. Richmond v. Richmond, 779 P.2d 1211, 1216-17 (Alaska 1989) and Hunt v. Hunt, 698 P.2d 1168, 1172 (Alaska 1985).

        Absent Rentschler providing the court with any supporting authority, other than citation of a statute which probably has no relevancy to the facts in this case, I hold the back due support is not property of this estate.

        DATED: May 21, 1991


                HERBERT A. ROSS
                Bankruptcy Judge

Serve:
Ken Ringstad, Esq., for Debtor
Marc Grober, Esq., for Victor Rentschler
Harley Adamson, Trustee
U.S. Trustee