In a case of first impression, the Tenth Circuit has held that a resident of Colorado may not assert an exemption under Colo. Rev. Stat. § 13-54-102(1)(s) for funds distributed from an exempt pension or retirement plan.  In re Gordon, 791 F.3d 1182 (10^th Cir. 2015).  In Gordon the debtors received a lump sum distribution of $16,700 from an exempt 401(k) plan prior to filing bankruptcy.  They deposited the funds into a savings account, where the funds remained segregated from all other funds the debtors had received from other sources.  The debtors used these funds to pay their living expenses prior to filing bankruptcy, and on the petition date had $2,051 remaining.  They asserted an exemption in these remaining funds.  The trustee objected to the claim of exemption, contending the exemption does not apply to funds after their distribution from the exempt retirement account.  The bankruptcy denied the exemption, and the Tenth Circuit agreed with the bankruptcy court’s holding.

The court concluded the language of the statute was clear in allowing an exemption only for funds that are within the exempt retirement account, noting the statute provides an exemption for “property, including funds, held in or payable from any pension or retirement plan or deferred compensation plan.”  Colo. Rev. Stat. § 13-54-102(1)(s).  Noting that Colorado courts have not addressed the question whether the exemption applies to funds which have been distributed, the Tenth Circuit stated that it “must ascertain and give effect to the intent of the legislature, and that task begins with the language of the statute itself.”  The court concluded that the statutory exemption applies only to funds that are actually in the exempt plan.  Although the court agreed with the debtors that Colorado liberally interprets statutes granting exemptions, the court stated that “even a liberal construction must find support in the statutory text,” and determined that such support was lacking in the statute at hand.  The fact that the Colorado legislature had provided an exemption in other statutes for distributed funds but did not do so in the pension and retirement account statute also supported its reasoning.  For example, the court noted that Colorado law provides for an exemption for proceeds of life insurance policies, Colo. Rev. Stat. § 13-54-102(1)(l)(I)(B), as well as for all money received as a pension arising out of service as a member of the armed forces of the U.S., Colo. Rev. Stat. § 13-54-102(h). 

The court concluded that creditors are prohibited by the statute from going after the plan itself, but once the funds in the plan are distributed to the debtor, the creditor is free to execute.