California IRA Exemptions Under Code of Civil Procedure § 704.115: The “Reasonably Necessary” Standard

California law provides limited protection for retirement assets, including Individual Retirement Accounts (IRAs), from creditor claims. Unlike employer-sponsored retirement plans, which often receive broader protections, IRAs in California are only exempt to the extent “reasonably necessary” for the support of the debtor and their dependents. This nuanced standard, rooted in California Code of Civil Procedure § 704.115, requires case-by-case judicial determination, balancing retirement security with creditor rights.

Statutory Framework: CCP § 704.115

California Code of Civil Procedure § 704.115(a)(3) establishes that IRAs are exempt from levy to the extent “necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents.” Subsection (e) clarifies that the exemption is not absolute and applies only to the portion of funds reasonably necessary, taking into account other resources available at retirement.

Courts consistently emphasize that this statute aims to preserve retirement income while avoiding abuse of self-funded plans. As the Ninth Circuit noted, IRAs lack the same mandatory protections afforded to ERISA-qualified plans because individuals control contributions and withdrawals (see In re Dudley, 249 F.3d 1170 (9th Cir. 2001)).

Judicial Standards for “Reasonably Necessary” Support

California courts weigh multiple factors in determining whether an IRA is exempt:

• Age and health of the debtor
• Current and anticipated financial needs
• Earning capacity and ability to rebuild retirement funds
• Availability and liquidity of other assets
• Expected living expenses during retirement
• Special needs of dependents

For example:

• In In re Crosby, 162 B.R. 276 (Bankr. C.D. Cal. 1993), the court examined the debtor’s age and earning capacity in deciding whether funds were necessary.
• In In re Patrick, 411 B.R. 659 (Bankr. C.D. Cal. 2008), a 73-year-old widower with no future employment prospects was allowed to exempt his IRA because rebuilding retirement savings was not feasible.
• Conversely, in Schwartzman v. Wilshinsky, 50 Cal.App.4th 619 (1996), a high-earning stockbroker with significant equity in his home failed to establish necessity; his IRA was subject to creditor claims.

These cases demonstrate the debtor’s burden of proof: they must present concrete evidence of financial circumstances showing why the funds are needed for support.

Retirement Purpose Requirement

Courts also require that an IRA be used principally for retirement purposes to qualify for exemption. While occasional withdrawals do not automatically defeat protection, repeated or strategic non-retirement withdrawals may.

• In In re Dudley, the Ninth Circuit confirmed that an IRA may still qualify despite some non-retirement withdrawals, so long as the account’s primary purpose is retirement.
• In contrast, where debtors used IRAs primarily to shelter assets from creditors or fund immediate personal expenses, exemptions have been denied (In re Daniel, 249 F.3d 1170 (9th Cir. 2001)).

Burden of Proof and Trustee Challenges

While the initial exemption claim is made by the debtor, trustees and creditors can challenge the exemption. Importantly, trustees need not disprove every statutory factor; showing that substantial other resources exist may suffice to defeat the exemption (In re Davis, 323 B.R. 732 (9th Cir. BAP 2005)).

Judicial Discretion and Case-by-Case Application

California courts retain broad discretion to determine what constitutes “reasonably necessary” support. The standard is inherently flexible:

• In In re Switzer, 146 B.R. 1 (Bankr. C.D. Cal. 1992), the court considered the debtor’s health, age, and prospects for employment in tailoring the exemption.
• In In re Marriage of LaMoure, 198 Cal.App.4th 807 (2011), an IRA was reachable to satisfy child support arrears because the debtor had other substantial retirement resources, namely a defined benefit pension.

This discretion underscores that the statute is not formulaic: identical IRA balances may be exempt for one debtor but fully reachable for another, depending on circumstances.

Legislative Intent and Policy Balance

The legislative intent behind § 704.115 is clear: to safeguard retirement income while preventing debtors from misusing IRAs as shields against legitimate creditor claims. Courts interpret the statute with this balance in mind, allowing protection only when consistent with genuine retirement planning.

Conclusion

Under California law, IRAs enjoy conditional exemption from creditor claims. Protection is not automatic: debtors must demonstrate that funds are reasonably necessary for support and that the account is principally for retirement. Courts apply a multifactor test, considering age, health, earning capacity, and available resources.

The result is a flexible but uncertain framework—one that underscores the importance of strategic retirement and asset-protection planning. For debtors, this means documenting financial need and maintaining IRAs as genuine retirement tools. For creditors, it offers opportunities to challenge exemptions where alternative resources or misuse can be shown.