Asset Protection Through Retirement Plans - Understanding the Benefits of California Code of Civil Procedure Section 704.115

Short Answer: California Code of Civil Procedure §704.115 protects certain retirement and private retirement plan assets from creditors — even in bankruptcy or judgment situations. For many Californians, this statute is the foundation of effective asset protection and estate planning.

At Moravec, Varga & Mooney, we frequently advise clients on how to safeguard their assets without crossing into unlawful “asset hiding.” Section 704.115 offers one of the few lawful and time-tested methods to do just that.

What Is CCP §704.115?

California Code of Civil Procedure §704.115 provides a statutory exemption for assets held in private retirement plans and certain types of retirement accounts.

In plain language:

It shields qualifying retirement funds from judgment creditors, meaning they can’t be taken to satisfy most debts or court judgments.

The protection applies to a wide range of accounts and plans — but only if the plan meets the statutory definition of a “private retirement plan.”

What Types of Accounts Are Protected?

✅ 1. Private Retirement Plans

These include employer-sponsored plans created for the purpose of paying retirement benefits to employees, owners, or officers of a business. Examples:

• Corporate pension plans

• Defined benefit or defined contribution plans

• Profit-sharing or 401(k) plans established by a business entity

• Self-employed retirement plans (if properly structured as “private retirement plans”)

Key requirement: The plan must be principally designed and used for retirement purposes.

✅ 2. IRAs and SEP Accounts

Under CCP §704.115(a)(3), Individual Retirement Accounts (IRAs) and Self-Employed Pension (SEP) accounts also receive protection — but only to the extent necessary to provide for the support of the debtor when retired (and their spouse and dependents).

In other words, traditional and Roth IRAs are protected, but not absolutely — the court can evaluate whether the funds exceed what’s reasonably needed for retirement.

How Strong Is the Protection?

Very strong — if properly established and maintained.

For private retirement plans under §704.115(a)(1):

• The protection is unlimited in amount.

• Creditors cannot attach or levy on these funds, even if the debtor files for bankruptcy or faces a civil judgment.

For IRAs under §704.115(a)(3):

• Protection is limited to what’s necessary for support during retirement, as determined by the court (Probate, Civil, or Bankruptcy).

• Courts consider factors such as age, employment, and lifestyle needs.

💼 Real-World Example

Imagine a small business owner who maintains a corporate retirement plan for herself and two employees. If she’s later sued personally or her business faces a civil judgment, her personal assets might be at risk — but the funds held in the company’s qualified retirement plan remain exempt under CCP §704.115.

Even if she later retires and draws income from that plan, those retirement funds remain protected so long as they are traceable to the exempt source.

Practical Benefits of CCP §704.115

1. Asset Protection Without Fraudulent Transfer Risk

Unlike last-minute transfers to family members or offshore accounts, assets in qualified retirement plans are protected by statute — not by concealment. There’s no “fraudulent transfer” issue because the protection applies automatically if the plan was properly formed.

2. Protection During Bankruptcy

California residents who choose state exemptions in bankruptcy can fully exempt their private retirement plan assets under §704.115.

3. Trust & Estate Integration

These protected assets can be coordinated with your revocable living trust or pour-over will to ensure smooth transfer to beneficiaries upon death, without losing the exemption.

4. Peace of Mind for Professionals and Business Owners

Doctors, contractors, and business owners who face professional liability risks can sleep easier knowing their retirement nest egg is legally insulated.

⚠️ Common Mistakes to Avoid

1. Commingling Non-Retirement Funds. Mixing regular investment funds with retirement assets can destroy the exemption.

2. Distributing Funds Too Early. Once retirement funds are withdrawn and deposited into a personal checking or investment account, they lose statutory protection.

3. Improperly Structured “Plans”. Not every savings or brokerage account labeled “retirement” qualifies. The plan must meet the legal definition and be primarily used for retirement purposes.

4. Failing to Maintain Documentation. Courts often require evidence that the plan was established for retirement, not as a post-lawsuit shelter.

   
   

Relationship to Federal Law (ERISA and Bankruptcy)

• ERISA-qualified plans (like most 401(k)s and pensions) already have federal protection from creditors.

• CCP §704.115 fills the gap for non-ERISA private retirement plans and IRAs, offering protection under California law even when federal law doesn’t apply.

If you file for bankruptcy in California and choose state exemptions, §704.115 ensures that your retirement assets remain exempt from the bankruptcy estate.

A Lawyer’s Perspective: Why This Statute Matters

From an estate-planning standpoint, CCP §704.115 is more than just a shield against creditors — it’s a planning tool that should be intentionally integrated into your overall asset-protection strategy.

At Moravec, Varga & Mooney, we help clients:

• Establish and document legitimate private retirement plans.

• Coordinate plan assets with living trusts and estate documents.

• Ensure that inherited retirement assets retain their protection.

• Evaluate how CCP §704.115 interacts with divorce, business liability, or long-term care planning.

Properly structured, a retirement plan under this section can preserve wealth for decades and keep families financially secure — even in times of litigation or economic downturn.

Bottom Line

California Code of Civil Procedure §704.115 offers one of the state’s most powerful — and often overlooked — forms of asset protection. It allows individuals and business owners to protect legitimate retirement funds from creditor claims, bankruptcy, and court judgments, while remaining fully compliant with California law.

Whether you’re self-employed, a professional, or planning your retirement, integrating §704.115 protections into your estate and financial plan can safeguard what you’ve built — and ensure your future security.

📞 Call Moravec, Varga & Mooney today to schedule your consultation. Protect your legacy, avoid probate headaches, and give your loved ones peace of mind.