The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Banking and Insurance
BILL: SB 968
INTRODUCER: Senator Polsky
SUBJECT: Individual Retirement Accounts
DATE: January 10, 2022
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Schrader Knudson BI Pre-meeting
2. JU
3. RC
I. Summary:
SB 968 clarifies that any interest in an individual retirement account (IRA) or individual
retirement annuity received in a transfer incident to divorce remains exempt from creditor claims
after the transfer is complete. As the bill clarifies, but does not modify, existing law or practice,
the bill is remedial in nature and applies retroactively to all transfers made incident to divorce.
The bill is effective upon becoming a law.
II. Present Situation:
Asset Protections Available in Florida
A creditor can collect money owed by filing an action for a judgment in state court. A judgment
is an order of the court creating an obligation, such as a debt. The creditor may then use that
judgment to collect from the debtor, i.e., executing the judgement, using certain legal tools such
as garnishing of wages and bank accounts and attaching liens to personal and real property. The
Florida Constitution and Florida Statutes both contain exemptions to protect certain real and
personal property of natural persons from forced sale by creditors. State constitutional
exemptions, such as those for homestead property,
1
can only be modified through a proposed
constitutional amendment that is subsequently approved by the electorate. Exemptions provided
in Florida Statutes may be modified through the regular legislative process. Chapter 222, F.S.,
specifies the types of property that is exempt from the claims of creditors.
Section 222.21, F.S., provides that pension money and certain tax-exempt funds or accounts are
exempt from legal processes, such as forced sale. Subsection (1) protects certain money received
by any debtor as a pensioner of the United States. Subsection (2) protects any money or other
1
See FLA. CONST. art. X, s. 4.
REVISED: BILL: SB 968 Page 2
assets payable to an owner, a participant, or a beneficiary from, and any interest
2
therein of any
owner, beneficiary, or participant if the fund or account meets certain qualifications. These funds
or accounts are commonly known as qualified, tax-exempt retirement accounts, and must be:
Maintained in accordance with a master plan, volume submitter plan, prototype plan, or any
other plan or other governing instrument preapproved by the Internal Revenue Service (IRS)
as exempt from taxation under certain sections of the Internal Revenue Code of 1986 (IRC),
as amended, regarding qualified retirement plans,
3
unless the exemption was overturned in a
final, non-appealable, proceeding;
Maintained in accordance with a plan or governing instrument determined by the IRS to be
exempt from taxation under certain sections of the IRC regarding qualified retirement plans,
4
unless such exemption was overturned in a final, non-appealable, proceeding; or
Not maintained in accordance with one of the above-described plans or governing
instruments, if the person claiming the exemption proves by a preponderance of the evidence
that the fund or account is maintained in substantial compliance with the applicable sections
regarding tax-exempt retirement accounts, or would have been in substantial compliance with
the applicable requirements for exemption under those sections, but for the negligent or
wrongful conduct of another person.
The fund or account need not be maintained in accordance with a plan or governing instrument
covered by any part of the Employee Retirement Income Security Act (ERISA) to be exempt.
5
The funds or accounts are only protected to the extent they are not otherwise subject to claims of
an alternate payee under a qualified domestic relations order, or claims of a surviving spouse
pursuant to an order determining elective share and contribution in accordance with ch. 732, F.S.
Paragraph (2)(c) of s. 222.21, F.S., provides that the exemption for such money, other assets, or
interest in these qualified, tax-exempt retirement accounts survives the owner’s death upon a
direct transfer or other eligible rollover excluded from gross income under the IRC,
6
such as, but
not limited to, the direct transfer or eligible rollover to an inherited individual retirement account
(IRA).
7
This allows a beneficiary to enjoy the exemption upon transfer. Paragraph (2)(c)
expressly states that it is intended to clarify existing law, be remedial in nature, and to apply
retroactively to all inherited individual retirement accounts without regard to the date the account
was created.
2
Under Florida law, the word “interest,” as used in statute providing exemption from creditors’ claims for any interest of
owner, beneficiary, or participant in enumerated tax-preferred funds or accounts, is a broad term encompassing many rights
of a party, tangible, intangible, legal, and equitable. In re Maddox, 713 F.2d 1526, 1530 (11th Cir. 1983).
3
26 U.S.C. ss. 401(a) (stock bonus, pension, and profit sharing plans), 403(a) and 403(b) (annuity plans), 408 (individual
retirement accounts (IRAs), 408A (Roth IRAs), 409 (tax credit employee stock ownership plans), 414 (provides definitions
and special rules for certain plans, such as retirement plans for government and church employees), 457(b) (deferred
compensation plans), or 501(a) (defining organizations exempt from taxation, including those defined in 401(a)).
4
Id.
5
Section 222.21(2)(b), F.S.
6
Section 222.21(2)(c), F.S.
7
See 26 U.S.C. s. 408(d)(3); pursuant to s. 222.21(2), F.S., individual retirement accounts, and interests therein, maintained
in accordance with 26 U.S.C. s. 408 are exempted from legal processes, such as forced sale by creditors. BILL: SB 968 Page 3
The specified tax-exempt retirement plans enumerated in subsection (2) are exempt from all
legal proceedings, including bankruptcy, even though bankruptcy is a federal proceeding
governed by the United States Bankruptcy Code (Bankruptcy Code).
8
Transfer of Section 408 Retirement Accounts Incident to Divorce
Retirement accounts exempted from taxation by s. 408 of the IRC are exempted from legal
processes, such as forced sale, by Florida law.
9
Section 408 of the IRC contemplates individual
retirement accounts (IRAs) and individual retirement annuities.
10
An individual retirement
account is a trust created or organized in the United States for the exclusive benefit of an
individual, or his beneficiaries, of which the governing document meets certain requirements.
11
An individual retirement annuity is an annuity contract, or an endowment contract, issued by an
insurance company which meets certain requirements.
12
An interest in an individual retirement
account or individual retirement annuity may be transferred, but only upon the death or divorce
of the original owner.
13
The transfer of an interest in an individual retirement account or
individual retirement annuity incident to divorce is not a taxable event.
14
Effective upon such
transfer, the interest in the individual retirement account or individual retirement annuity is
treated as the account of the spouse.
15
Exempted Property in Bankruptcy Proceedings
The Bankruptcy Code expressly recognizes exemptions provided under the state or local law of
the domicile of the debtor.
16
Florida is an opt-out state, meaning that when a Florida resident
files for bankruptcy, Florida law provides the exemptions available to the debtor—not the
Bankruptcy Code.
17
Florida law contains a number of exemptions included in the Bankruptcy
Code, such as IRAs and pensions, profit sharing, and retirement benefits.
18
Florida also exempts
all inherited IRA accounts from creditor claims.
19
Likewise, the Bankruptcy Code exempts
retirement funds in a fund or account exempt from taxation under most of the same sections of
the IRC, such as those applicable to stock bonus, pension, and profit sharing plans, annuity plans,
IRAs, and deferred compensation plans.
20
8
11 U.S.C. s. 101, et. seq.; 11 U.S.C. s. 522(b)(3)(A).
9
Section 222.21(2), F.S.
10
26 U.S.C. s. 408(a)-(c).
11
See 26 U.S.C. s. 408(a), et. seq.
12
26 U.S.C. s. 408(b).
13
26 U.S.C. s. 408(d).
14
26 U.S.C. s. 408(d)(6).
15
Id.
16
11 U.S.C. s. 522(b)(3)(A).
17
Section 222.20, F.S.
18
Section 222.21(2), F.S.
19
Section 222.21(2)(c), F.S.
20
11 U.S.C. s. 522(d)(12) exempts “retirement funds to the extent that those funds are in a fund or account that is exempt
from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.”
Section 222.21(2), F.S., exempts qualified plans exempt from taxation under ss. 401(a), 403(a) and 403(b), 408, 408A, 414,
457(b), and 501(a) of the IRC. Unlike the Bankruptcy Code, Florida additionally exempts qualified tax credit employee stock
ownership plans exempted from taxation under section 409 of the IRC. BILL: SB 968 Page 4
Regarding the exemption for an IRA or an interest therein where such was awarded incident to a
divorce, a 2018 bankruptcy court decision in the United States Bankruptcy Appellate Panel for
the 8th Circuit, In re Lerbakken, 590 B.R. 895 (B.A.P. 8th Cir. 2018), may indicate a need to
clarify Florida’s exemption.
In Lerbakken, the 8th Circuit Bankruptcy Appellate Panel stated that two requirements must be
satisfied in order for a debtor to claim funds as exempt retirement funds pursuant to the
Bankruptcy Code:
The amount must be retirement funds; and
The retirement funds must be in an account that is exempt from taxation under one of the
provisions of the IRC.
21
The Bankruptcy Code does not define the term “retirement funds,” so the term is applied within
its ordinary meaning: “sums of money set aside for the day an individual stops working.”
22
In
Lerbakken, the 8th Circuit Bankruptcy Appellate Panel held that funds held in 401K and IRA
accounts awarded to a Chapter 7 debtor as part of a stipulated property settlement in a divorce
proceeding were not “retirement funds” because while the debtor’s former spouse had saved
funds in those accounts for a joint retirement, any interest the debtor held in those accounts
resulted from a property settlement. However, it is notable that the ruling was an 8th Federal
Circuit opinion on appeal from the United States Bankruptcy Court for the District of Minnesota.
Thus, the Lerbakken Court’s ruling interpreting the meaning of “retirement funds” in would not
be controlling in the 11th Circuit (of which Florida is a part).
The issue of whether an IRA is exempt from bankruptcy proceedings when awarded incident to a
divorce proceeding has arisen in the 11th Circuit recently.
23
During the course of the
proceedings, the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division, acknowledged that, although the authority to make the certification for appeal had
shifted from Bankruptcy Court to the district court during the pendency of ruling on a motion for
appeal, there did exist a “matter of public importance” on the IRA issue and “no controlling
decision of the Eleventh Circuit or the Supreme Court exists.”
24
Further, the Bankruptcy Court
acknowledges that “conflicting opinions from other jurisdictions arguably exist.”
25
Thus, the
Bankruptcy Court had intended to certify the issue for appellate review.
26
21
11 U.S.C. s. 522(d)(12).
22
Clark v. Rameker, 573 U.S. 122, 127 (2014).
23
This case was dismissed without prejudice on upon the parties reaching settlement in the matter. Carapella v. Glass, No.
8:19-cv-3050-T-02 (M.D. Fla. Jan. 8, 2021). Thus, the Court did not reach a decision on the IRA issue.
24
In re Glass, 613 B.R. 33, 41 (Bankr. M.D. Fla. 2020).
25
Id. at 41.
26
Id. at 34. Under 28 U.S.C. s. 158(d)(2)(A), the grounds for certification for direct review in a court of appeals are:
(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the
court of appeals for the circuit or of Supreme Court of the United States, or involves a matter of public importance;
(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree may materially advance the progression of the case
or proceeding in which the appeal is taken. BILL: SB 968 Page 5
III. Effect of Proposed Changes:
Section 1 amends paragraph (2)(c) of s. 222.21, F.S., to clarify that any interest in any IRA or
individual retirement annuity received in a transfer incident to divorce as described in
s. 408(d)(6) of the Internal Revenue Code of 1986 (IRC), as amended, continues to be exempt
from creditor claims after the transfer, regardless of the date the transfer was made.
To the extent s. 222.21(2)(a), F.S., exempts a transferee’s interest in an IRA or individual
retirement annuity upon a transfer incident to divorce pursuant to s. 408(d)(6) of the IRC, the bill
clarifies current law, which exempts such interests from the claims of the transferee’s creditors.
Existing law provides that s. 222.21(2)(c), F.S., is intended to clarify existing law, is remedial in
nature, and shall have retroactive application. As a result, the provision of the bill will apply
retroactively as well.
Section 2 provides that the act shall take effect upon becoming a law
IV. Constitutional Issues:
A. Municipality/County Mandates Restrictions:
None.
B. Public Records/Open Meetings Issues:
None.
C. Trust Funds Restrictions:
None.
D. State Tax or Fee Increases:
None.
E. Other Constitutional Issues:
Retroactive Application
Once a bill becomes law, it is presumed to apply only prospectively. The presumption
against retroactive application may be rebutted by clear evidence of legislative intent.
27
To determine if the terms of a statute and the purpose of the enactment indicate
retroactive application, a court may consider the language, structure, purpose, and
legislative history of the enactment.
28
27
Florida Ins. Guar. Ass’n, Inc. v. Devon Neighborhood Ass’n, Inc., 67 So. 3d 187 (Fla. 2011).
28
Id. BILL: SB 968 Page 6
If the legislation clearly expresses an intent that the law apply retroactively, then the
second inquiry is whether retroactive application is constitutionally permissible.
29
Even
when the Legislature has clearly expressed its intention that the statute be given a
retroactive application, courts must refuse to do so if it impairs vested rights, creates new
obligations, imposes new penalties,
30
or impairs an obligation of contract.
31
For example,
ex post facto legislation, i.e., a law that expands criminal liability retroactively by either
creating a new crime for past conduct or by increasing the penalty for past conduct, is
forbidden by both the Florida Constitution and the United States Constitution. Statutes
that do not alter vested rights but relate only to remedies or procedure may be applied
retroactively.
32
V. Constitutional Issues:
A. Municipality/County Mandates Restrictions:
None.
B. Public Records/Open Meetings Issues:
None.
C. Trust Funds Restrictions:
None.
D. State Tax or Fee Increases:
None.
E. Other Constitutional Issues:
None.
VI. Fiscal Impact Statement:
A. Tax/Fee Issues:
None.
B. Private Sector Impact:
None.
29
Menendez v. Progressive Exp. Ins. Co., Inc., 35 So. 3d 873 (Fla. 2010); State Farm Mut. Auto. Ins. Co. v. Laforet,
658 So. 2d 55 (Fla. 1995).
30
Id.
31
Menendez v. Progressive Exp. Ins. Co., Inc., 35 So. 3d 873 (Fla. 2010).
32
Metropolitan Dade County v. Chase Federal Housing Corporation, 737 So. 2d 494 (Fla. 1999). BILL: SB 968 Page 7
C. Government Sector Impact:
None.
VII. Technical Deficiencies:
None.
VIII. Related Issues:
None.
IX. Statutes Affected:
This bill substantially amends section 222.21, Florida Statutes.
X. Additional Information:
A. Committee Substitute – Statement of Changes:
(Summarizing differences between the Committee Substitute and the prior version of the bill.)
None.
B. Amendments:
None.
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.