Retirement money is the asset judgment creditors most often write off and most often should look at twice. New York protects trusts and qualified plans generously, but the protection has seams: the debtor who funded a trust for their own benefit, the account holder who made a large deposit right before enforcement, the distribution that has already left the plan. The attorneys at Warner & Scheuerman read CPLR 5205(c) closely for exactly those seams, because the difference between an exempt account and a recoverable one usually comes down to who created the trust and when the money moved.
What does CPLR 5205(c) protect?
CPLR 5205(c) exempts from application to the satisfaction of a money judgment all property held in trust for a judgment debtor where the trust was created by, or the fund proceeded from, a person other than the judgment debtor. The subsection extends that treatment to qualified retirement vehicles, including plans qualified under Internal Revenue Code sections 401, 403, 408, and 457, which covers 401(k) plans, 403(b) accounts, traditional and Roth IRAs, SEP and SIMPLE IRAs, Keogh plans, and governmental deferred compensation.
The statute treats those retirement accounts as if the debtor’s interest were held in a trust created by a third party, which is the drafting device that pulls self-funded retirement savings inside a protection otherwise reserved for money someone else set aside.
Separately, ERISA plans carry federal anti-alienation protection under 29 USC section 1056(d), which preempts state law and shields most employer-sponsored pension and 401(k) assets regardless of what the CPLR says. IRAs are not ERISA plans, so their protection rests on the state statute.
What is the self-settled trust exception?
A self-settled trust is one the debtor created for their own benefit, and New York does not protect it from that debtor’s creditors. Estates, Powers and Trusts Law section 7-3.1(a) states that a disposition in trust for the use of the creator is void as against the creator’s existing or subsequent creditors.
The rule closes the obvious loophole. A person cannot transfer assets into a trust, keep the beneficial enjoyment of them, and thereby put them beyond the reach of judgments. Creditors reach the assets to the extent the debtor retained a beneficial interest.
Two situations complicate the analysis. Trusts formed under the laws of jurisdictions that permit domestic or offshore asset protection trusts raise choice of law questions, and New York courts have generally declined to let a foreign situs defeat New York public policy where the debtor, the creditor, and the underlying conduct are all local. And where a third party genuinely created and funded the trust, spendthrift protection under EPTL 7-3.1 holds, though CPLR 5205(d) still allows a creditor to reach ten percent of income payments made to the debtor from that trust.
Can a creditor reach retirement account contributions?
Sometimes, and the timing test is specific. CPLR 5205(c)(4) removes the exemption for additions to a trust or retirement plan made after the date a money judgment was entered against the debtor, where the additions were not made in the ordinary course of the debtor’s business or financial affairs.
The provision also treats additions as presumptively fraudulent where they exceed what is reasonable given the debtor’s circumstances, which puts scrutiny on the debtor who suddenly maximizes contributions while a judgment is outstanding.
New York’s Uniform Voidable Transactions Act, adopted in 2020 at Debtor and Creditor Law sections 270 through 281, supplies a parallel route. Funding a retirement account or trust with assets that would otherwise have gone to creditors, while insolvent, is a constructive fraudulent transfer with no intent requirement, generally subject to a four-year limitations period from the transfer.
When does exempt money stop being exempt?
When it leaves the plan and sits somewhere else. A distribution from an IRA deposited into a checking account loses the character the statute protected, and the funds become subject to the ordinary bank account rules, including the Exempt Income Protection Act floors under CPLR 5222-a.
Tracing matters here. Where a debtor commingles a retirement distribution with other deposits, the burden of demonstrating the exempt source generally falls on the debtor, and a poorly documented account often cannot carry it.
The exemption also yields to certain claims outright. Child support, spousal support, and maintenance obligations reach retirement assets through a qualified domestic relations order, and federal tax liens attach to retirement accounts notwithstanding state exemptions.
Where a Warner & Scheuerman investigation looks first
Documents that show who funded what, and on what date. The productive set includes the trust instrument itself, obtained by information subpoena under CPLR 5224 to the trustee, along with the trustee’s accountings and distribution history. Federal tax returns show IRA contributions, plan distributions, and trust income reported on Schedule K-1 of Form 1041. Form 5498, filed by IRA custodians, reports contributions and year-end fair market value.
A deposition under CPLR 5223 should establish who settled the trust, whether the debtor retained any power of revocation or appointment, whether the debtor serves as trustee, and what discretion the trustee actually exercises. A debtor who is settlor, trustee, and beneficiary of the same instrument has very little protection left.
Retirement and trust assets are protected, not sealed. The exemption depends on facts the creditor can test: the source of the funds, the timing of the contributions, the identity of the settlor, and whether the money is still inside the plan. Warner & Scheuerman represents judgment creditors in New York post-judgment enforcement involving trusts, retirement accounts, and voidable transfer claims. Contact the firm through wslaw.nyc to evaluate whether your debtor’s protected assets are as protected as they appear.
