Tuesday, April 05, 2005

The Supreme Court's decision that IRAs can be shielded from creditors... seems to be based on the Court's view that the 10% penalty that applies to premature withdrawals is 'substantial', thus making the IRA holders right to those funds 'conditional on age', which is a necessary prerequisite for shielding assets from creditors. Without the Court making such a determination, IRAs would likely have been subject to creditor claims...

Now where did the determination that 10% was 'substantial' come from? Is there a prior Supreme Court ruling that established 10% as some type of benchmark for determining 'substantial'? Are there any statutes that established such a threshold? Bankruptcy law exempts assets which the holder can not access until a certain age (such as defined benefit plans that start making payments at a certain age). The Justices cited Congress' intent to discourage early access to IRAs - but there is a big difference between discouraging behavior and putting an outright ban on that action. The Justices did not cite any provision of bankruptcy law that addressed penalties, substantial or otherwise. I'm assuming this means there is no such language (based on my guess that had the law been clear on this point, it is very unlikely that all of the prior panels hearing this case would have reached a conclusion opposite that of the Supreme Court).

It appears to this good old non-lawyer boy that, once again, the Supreme Court Justices just ad-libbed their way to a decision they wanted to reach. Now this case doesn't have deep social and political undertones such as the Schiavo, Bush-Gore or Lawrence cases.... but should that make what the Court did any more acceptable?