Deferred Compensation Is Not Protected As Pension Or Wages To Head Of Household
Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.
Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor's benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client's salary until after retirement. The company's plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.
Florida courts have not protected money paid or payable to a debtor as deferred compensation. A Florida bankruptcy court rejected attempts to protect a debtor's deferred compensation either as wages under F.S. 222.11 or as a form of a pension under F.S. 222.21. (221 B.R. 537). This example illustrates the importance of examining statements and underlying documents of your financial plans to make sure they are protected under Florida law.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
For several years I have deferred into a Deferred Equity Plan a percent of my 1099 compensation consisting of commissions paid to me by my broker dealer with whom I am registered as a licensed securities representative and licensed insurance agent.The deferred compensation is invested in the broker dealer's publicly traded common stock. There is a vesting schedule whereby after the first year following the year of deferrals 25% of the number of shares in which the deferrals were invested vests and the shares are paid to me and deposited in my own brokerage account which I have with the broker dealer. The balance of a given year's deferrals vests in successive years from the first distribution in similar fashion, 25% in each of years 2 - 4 until a given years deferrals has been fully paid out.
The Plan stipulates,
"Neither you nor any other person shall have any
right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual
receipt, the amounts, if any, payable under the Plan,
or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and
non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure,
attachment, garnishment or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by you or any other person, be
transferable by operation of law in the event of your
or any other person’s bankruptcy or insolvency or be
transferable to a spouse as a result of a property
settlement or otherwise."
Does the foregoing stipulation of the Plan rule out the attachment by, or assignment to, a creditor my brokerage account into which I have directed distributions of the deferred stock compensation, in order to satisfy a judgment, or a condition for the settlement of a debt? Without actually referring to the deferred stock distribution, can the assignment or settlement document language have enough "teeth" to still be able to seize the stock without violating the above stipulation?