Appeals Court: 403(b) Funds Can't Be Shielded in Bankruptcy

July 27, 2005 ( - A federal appeals court has ruled that a Texas educator still owes his ex-wife alimony from his 403(b) retirement account despite his having filed for US Bankruptcy Court protection.

The US 5 th Circuit Court of Appeals upheld rulings by both a US Bankruptcy Court judge and a federal District Court jurist that the amount Joseph Coppola owed his ex-wife Sheri Lyn Beeson constituted a plan loan and was to be considered a qualified plan distribution. Because of that finding, those funds no longer qualified as being part of the 403(b) and, therefore, could not be protected under Texas and federal bankruptcy law, according to the rulings.

According to the appeals court, Coppola and Beeson divorced in October 1999 with Coppola ordered in the divorce court order to pay Beeson a total of $212,000 in alimony in monthly payments. As security for that debt, Coppola assigned funds from his 403(b) plan from the Texas Teachers Retirement System, which totaled $640,000 when he decided to segregate the funds.

But the agreement apparently fell apart in December 2000 when, according to the appeals decision, Coppola began withdrawing money from his account, filed a Chapter 7 bankruptcy case, and argued that his ex-wife no longer could get access to the money because his retirement account constituted part of his bankruptcy estate.

Beeson and the federal bankruptcy trustee challenged Coppola’s contention and won the argument before the bankruptcy court and the US District Court judge.

The opinion in Coppola v. Beeson   (In re Coppola), 5th Cir., No. 04-20311, 7/25/05) is  here .