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Gilchinsky v. National Westminster Bank NJ

311 N.J. Super. 339, 709 A.2d 1347 (App. Div. 1998)

PENSION PLANS; IRA’S; FRAUDULENT TRANSFERS—Pension funds rolled over into an IRA maintain their exemption-from-levy status even if doing so prevents others from obtaining relief for wrongs done them. A disclosed transfer may not be fraudulent, especially if the complaining creditor assisted in marking the transfer.

An employee of a New York company with a profit sharing plan pleaded guilty to embezzling hundreds of thousands of dollars from her employer. While a decision on the amount of the damages she owed to the company was still pending, she arranged to move all her funds from the profit sharing plan to an IRA she established with a bank in New Jersey. The company complied with her request and transferred the money, but then filed a complaint on the foreign judgment in Bergen County. The employee was ordered to turn over the proceeds of her IRA to the employer. The employee obtained a stay of enforcement and filed a separate action seeking a determination that pension funds rolled over into an IRA maintain their status under N.J.S. 25:2-1 as exempt from levy by creditors. After considering the timing of the transfer and the lack of any connection with New Jersey, the motion judge concluded that the rollover to the IRA was a fraudulent transfer, and therefore, the funds were subject to levy by her employer.

State law determines whether an IRA enjoys protection from levy, and N.J.S. 25:2-1 states that any property held in a qualifying trust is exempt from claims of creditors unless there had been a fraudulent conveyance. Since there is no question that an IRA is a qualifying trust, the only issue for the Appellate Division was whether the transfer was fraudulent. A fraudulent transfer is one made with the intent to hinder, delay or defraud any creditor, regardless of whether the creditor’s claim arose before or after the transfer was made. In reversing the motion judge’s decision, the Appellate Division stated that the motion judge failed to consider certain factors. Specifically, the transfer was not concealed by the employee, and the creditor actually participated in the transfer by wiring the money into the IRA account. The Court held it to be irrelevant that the transfer was into a New Jersey account. Even if the transfer been made into a New York IRA, it would still have been exempt from levy because the employee simply changed the form of qualified trust from a profit sharing plan to an IRA. Accordingly, the employee enjoyed the safe harbor created in New Jersey for pension funds, and as long as there is no early withdrawal it remains a qualifying trust.


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