Filed 4/21/16
                          CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                           SECOND APPELLATE DISTRICT

                                    DIVISION TWO


TIMOTHY O'BRIEN,                               B263364

        Plaintiff and Respondent,              (Los Angeles County
                                               Super. Ct. No. GC048333)
        v.

AMBS DIAGNOSTICS, LLC,

        Defendant and Appellant.



        APPEAL from a postjudgment order of the Superior Court of Los Angeles
County. C. Edward Simpson, Judge. Reversed and remanded.


        Woolf & Nachimson, Benjamin S. Nachimson, for Plaintiff and Respondent.


        Miller, Monson, Peshel, Polacek & Hoshaw, Thomas M. Monson; Butterfield
Schechter, Marc S. Schechter, Paul D. Woodard, for Defendant and Appellant.




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       Is money that a person sets aside for the “qualified higher education expenses” of
his children under Internal Revenue Code section 529 (so-called “section 529 savings
accounts”) exempt from the collection efforts under the California Enforcement of
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Judgments Law, Code of Civil Procedure section 680.010 et seq., of a creditor who has a
valid judgment against that person? We conclude it is not. Accordingly, we reverse the
trial court’s ruling to the contrary, and also reverse its finding that the debtor’s retirement
accounts are fully exempt from collection because the court did not apply the proper legal
standard in evaluating the exemption for private retirement accounts.
                    FACTS AND PROCEDURAL BACKGROUND
       Following a bench trial in 2014, AMBS Diagnostics, LLC (Diagnostics) obtained
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a judgment against Timothy O’Brien (O’Brien) in the amount of $622,957.21.
       A few months later, Diagnostics recorded an abstract of judgment and the trial
court issued a writ of execution for that judgment. Diagnostics served a notice of levy
upon FMR, LLC/Fidelity Investments, which managed at least seven of O’Brien’s
investment accounts.
       O’Brien thereafter filed a Claim of Exemption seeking a judicial declaration that
seven of his Fidelity Investments accounts were exempt from levy: (1) three section 529
savings accounts held in his name, then valued at $54,765.39, one for each of his three
children; and (2) four individual retirement accounts held fully or partially in his name,
then valued at $465,350.04. For all seven accounts, O’Brien invoked the exemption for
“individual retirement . . . accounts” set forth in section 704.115. In support of his claim,
O’Brien submitted evidence that he was 51 and his wife was 41, that he was caring for
his three children and two members of his extended family, that his monthly income of



1     Unless otherwise indicated, all further statutory references are to the Code of Civil
Procedure.

2     We affirmed this portion of the judgment in an unpublished opinion. (See O’Brien
v. AMBS Diagnostics, LLC (Jan. 7, 2016, B260301).)

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$8,841.30 was overshadowed by his monthly expenses of anywhere from $17,632 to
$20,000-plus, and that he possessed no “other substantial assets to rely upon for . . .
retirement.” In prior depositions, O’Brien had indicated that his new company in 2014
was generating an average monthly income of $20,000 and that one of his extended
relatives was contributing $1,000 per month toward the household’s expenses; neither
was reflected in O’Brien’s exemption request.
       Diagnostics objected. Following further briefing, the trial court held a hearing and
thereafter granted O’Brien’s claims for exemption for all of the section 529 savings
accounts and for the full amount of all four retirement accounts. With respect to the
section 529 savings accounts, the court noted the absence of any “statutory or case
authority” as to whether section 529 savings accounts are exempt from levy, but reasoned
that “the same public policy applies to both the private retirement plans and the 52[9]
plans,” further noting that “protecting monies held in trust for the education of one[’]s
children may even be a greater reason to exempt them from execution.” With respect to
the individual retirement accounts, the court stated its view during the hearing that it
could not “weigh or take into consideration what [O’Brien’s and his wife’s] current
wages and salaries are.” In its subsequent, written order, the court concluded that
exempting the full amount of the retirement accounts was necessary because O’Brien was
“self employed” and, upon his retirement, “will have only the net after tax income from
his private retirement plans and whatever social security income he and his wife might
receive.”
       Diagnostics timely appealed this ruling.
                                      DISCUSSION
       Diagnostics argues that the trial court erred in (1) concluding that the section 529
savings accounts were exempt from levy, and (2) concluding that the full amount of
O’Brien’s four retirement accounts was “necessary to provide for” him and his family
upon his retirement. The first question turns on a question of statutory construction, so
our review is de novo. (Lieberman v. Hawkins (In re Lieberman) (9th Cir. 2001) 245
F.3d 1090, 1091 [“(t)he scope of an exemption under Cal. Civ. Proc. Code § 704.115 is a

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question of law”].) The second is entrusted to a trial court’s “wide discretion,” so our
review is for an abuse of discretion. (See Spenler v. Siegel (In re Spenler) (9th Cir. 1997)
212 B.R. 625, 631.)
I.    Whether Section 529 Savings Accounts Are Exempt From Levy Under
California’s Enforcement of Judgments Law

       California’s Enforcement of Judgments Law (Law), which is codified in sections
680.010 through 724.260, is a “‘comprehensive and precisely detailed scheme’ governing
enforcement of money judgments” in California. (Kono v. Meeker (2011) 196
Cal.App.4th 81, 86 (Kono).) As a general rule, the Law authorizes a creditor holding a
“money judgment” to “enforce” that judgment against “all property of the judgment
debtor” through a “writ of execution.” (§§ 695.010, subd. (a) & 699.710.) To effectuate
the California Constitution’s command that “a certain portion of the homestead and other
property of all heads of families” be “protect[ed], by law, from forced sale” (Cal. Const.,
art. XX, § 1.5), our Legislature exempted certain items of property from levy by creditors
with money judgments; those exemptions are set forth in sections 704.010 through
704.210. (Kono, at p. 86; Ford Motor Credit Co. v. Waters (2008) 166 Cal.App.4th
Supp. 1, 8 (Ford Motor Credit Co.).) The debtor bears the burden of proving that his
property fits within one or more of these exemptions. (§ 703.010, subd. (a);
Schwartzman v. Wilshinsky (1996) 50 Cal.App.4th 619, 626 (Schwartzman).)
       Section 529 of the Internal Revenue Code creates a narrow exemption from
federal income taxes for money that is earned as part of a “qualified tuition program.”
(26 U.S.C. § 529.) Under this exemption, an individual may contribute cash, after paying
income taxes on it, into a 529 savings account; the individual may later withdraw money
from that account—without having to pay any income tax on the account’s earnings—if
that money is used to pay the “qualified higher education expenses” of a relative. (§ 529,
subds. (a), (b), (c)(1), (c)(3) & (e).) If the money is used for any other purpose, the
individual has to pay the income taxes on any earnings plus a 10 percent penalty.
(§§ 529, subd. (c)(6) & 530, subd. (d)(4).)


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       Do section 529 savings accounts fit within any of the Law’s exemptions from
levy? At first blush, the answer appears to be no because none of the Law’s exemptions
expressly refer to section 529 savings accounts or other moneys set aside for education.
(See §§ 704.010-704.210.)
       O’Brien offers three reasons why a section 529 savings account should
nevertheless be immune from levy. First, O’Brien contends that we should look to
federal bankruptcy law. Under that law, section 529 savings accounts are excluded from
a debtor’s estate and thus cannot be used to satisfy creditors’ debts. (11 U.S.C. § 541,
subd. (b)(6).) This is true, but it is also irrelevant. The protection accorded to a debtor’s
section 529 savings accounts in federal bankruptcy proceedings arises only after the
debtor has initiated those proceedings by filing for bankruptcy. (See In re Moses v.
Southern California Permanente Med. Group (9th Cir. 1999) 167 F.3d 470, 473 [“(t)he
act of filing a petition under the Bankruptcy Code commences bankruptcy proceedings
and creates an estate”]; 11 U.S.C. § 541, subd. (a) [“(t)he commencement of a
[bankruptcy] case . . . creates an estate”].) O’Brien never filed for bankruptcy. Because
the power of federal bankruptcy law to displace state law does not extend to state laws
“concern[ing] conduct that occurred prior to bankruptcy” (Davis v. Yageo Corp. (9th Cir.
2007) 481 F.3d 661, 678; cf. PG&E Co. v. Cal. ex rel. Cal. Dept. of Toxic Substances
Control (9th Cir. 2003) 350 F.3d 932, 943 [discussing preemptive power once federal
bankruptcy jurisdiction has been invoked]), we decline to give controlling weight to the
treatment of section 529 savings accounts under federal bankruptcy law when
interpreting how our state’s collections law operates prior to bankruptcy. O’Brien also
cites the maxim that “[s]tate and federal laws should be accommodated and harmonized
where possible” (Cal. Arco Distributors v. Atlantic Richfield Co. (1984) 158 Cal.App.3d
349, 359; Greater Westchester Homeowners Assn. v. Los Angeles (1979) 26 Cal.3d 86,
93), but this maxim is a tool for “avoid[ing]” preemption (Cal. Arco Distributors, at
p. 359), which, as noted above, is of no concern here.
       Second, O’Brien asserts that the Law’s exemption, in section 704.115, for “private
retirement accounts” encompasses section 529 savings accounts. This exemption applies

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to “[a]ll amounts held, controlled, or in process of distribution by a private retirement
plan, for the payment of benefits as an annuity, pension, retirement allowance, disability
payment, or death benefit from a private retirement plan.” (§ 704.115, subd. (b).) It
defines a “private retirement plan” as including, among other things and as relevant here,
“[s]elf-employed retirement plans and individual retirement annuities or accounts
provided for in the Internal Revenue Code of 1986 . . . .” (Id., subd. (a)(3).) To qualify
as a “private retirement plan,” however, the plan must also be “designed and used for
retirement purposes.” (Schwartzman, supra, 50 Cal.App.4th at p. 628; Yaesu Electronics
Corp. v. Tamura (1994) 28 Cal.App.4th 8, 14 [“the fundamental inquiry” under section
704.115 is “whether the plan was designed and used for a retirement purpose”].) As
defined, section 529 savings accounts are designed and used for educational purposes, not
retirement purposes; indeed, such accounts lose their tax exempt status and are subject to
penalty if they are used for anything other than educational purposes.
       Lastly, O’Brien contends—and the trial court agreed—that there are good policy
reasons to exempt section 529 savings accounts from levy. The purpose of exempting
certain property from levy is “to protect enough of the debtors’ property from
enforcement to enable them to support themselves and their families.” (Kono, supra, 196
Cal.App.4th at p. 86, italics added; Ford Motor Credit Co., supra, 166 Cal.App.4th Supp.
at p. 8 [exemptions exist “for the protection of the debtor and the debtor’s family”].) The
money a debtor has set aside for his children’s higher education would seem to fall
comfortably within this rationale. Exempting section 529 savings accounts from levy
prior to bankruptcy could also be viewed as more consistent with the policy underlying
federal bankruptcy law; after all, if creditors can deplete those accounts by levying on
them prior to bankruptcy, the protection accorded to them in a subsequent bankruptcy
proceeding is too little, too late. Indeed, this may be why at least 27 states have
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exempted section 529 savings accounts from levy by creditors. However, California is


3      (See Alaska Stat. § 14.40.802; Ark.C.A. § 6-84-110, subd. (b)(2); Colo. Rev. Stat.
§ 23-3.1-307.4; Fla. Stat. § 222.22; Idaho Code § 11-604A; Kan. Stat. Ann. § 60-2308,
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not one of those states. “Exemptions are the creatures of statutes” and “[n]o property is
exempt unless made so by express provision of law.” (In re Estate of Brown (1889) 123
Cal. 399, 401.) Because “exemptions cannot be enlarged by the courts” (Vinyard v.
Sisson (1990) 223 Cal.App.3d 931, 938), we certainly cannot go one step further and
create a brand new exception from whole cloth, no matter how persuasive the policy
reasons that might support it. We leave that task where our Constitution put it—with our
Legislature.
       For all these reasons, the trial court erred in exempting O’Brien’s section 529
savings accounts from execution.
II. Whether the Trial Court Abused Its Discretion In Exempting the Full
Amount of O’Brien’s Retirement Accounts

       As noted above, section 704.115 exempts “private retirement plans” from levy.
(§ 704.115, subd. (b).) However, this exemption is not an all-or-nothing affair; instead, it
exempts these accounts “only 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 of the judgment debtor.” (Id., subd. (e); Schwartzman, supra, 50 Cal.App.4th
at pp. 629-630 [so noting].)
       In assessing what portion of a debtor’s retirement account is “necessary” for the
debtor’s support, the statute directs a court to “tak[e] into account all resources that are
likely to be available for the support of the judgment debtor when the judgment debtor
retires.” (§ 704.115, subd. (e)) “In determining whether the amounts held in the
accounts are necessary for [the] debtor’s support when she retires, [a] court should



subds. (f)(2)-(f)(4); Ky. Rev. Stat. § 164A.350; La. Rev. Stat. § 17-3096G; Me. Rev. Stat.
Ann., tit. 20-A, § 11478; Md. Edu. Code. Ann. § 18-1913; Neb. Rev. Stat. § 85-1809;
Nev. Rev. Stat. § 21.090; N.J. Stat. § 18A:71B-41.1; N.Y. CLS CPLR § 5205; N.D.
Admin. Code § 12.5-02-01-06; Ohio Rev. Code. Ann. § 3334.15, subd. (a); 31 Okl. Stat.
§ 1, A, 24; Ore. Rev. Stat. § 348.863, subd. (2); 24 Penn. Stat. § 6901.309.2; R.I. Gen.
Laws § 9-26-4, subd. (15); S.C. Code Ann. § 59-2-140; S.D. Cod. Laws § 13-63-20;
Tenn. Code Ann. § 49-7-822; Tex. Prop. Code § 42.0022; Va. Code Ann. § 23-38.81; W.
Va. Code § 18-30-7, subd. (i); Wis. Stat. § 16.64.)
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consider various factors, including [¶] [1] ‘the debtor’s present and anticipated living
expenses and income; [2] the age and health of the debtor and his or her dependents;
[3] the debtor’s ability to work and earn a living; [4] the debtor’s training, job skills and
education; [5] the debtor’s other assets and their liquidity; [6] the debtor’s ability to save
for retirement; and [7] any special needs of the debtor and his or her dependents.’”
(Gonzalez v. Davis (In re Davis) (B.A.P. 9th Cir. 2005) 323 B.R. 732, 735-736, quoting
In re Moffat (B.A.P. 9th Cir. 1990) 119 B.R. 201, 206, aff’d by 959 F.2d 740 (9th Cir.
1992).) The goal, in examining these factors, is to assess the “potential disruption in
earning capacity” from the judgment’s levy and “the [d]ebtor’s ability to regenerate
retirement funds” prior to retirement. (In re Switzer (Bankr. C.D.Cal. 1992) 146 B.R. 1,
5.)
       Although a trial court is not required to make express findings on each of these
factors (e.g., Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1118 [express findings on
controverted facts not generally required]) and although an appellate court will generally
imply the findings necessary to support the proper exercise of a trial court’s discretion
(Acacia Patent Acquisition, LLC v. Superior Court (2015) 234 Cal.App.4th 1091, 1096-
1097), a trial court abuses its discretion when it appears from the record that it “applie[d]
the wrong legal standard.” (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th
725, 733.)
       Here, the trial court applied the wrong standard. The court refused to “weigh or
take into consideration what [O’Brien’s and his wife’s] current wages and salaries are,”
but those are facts that the case law dictates must be considered in assessing O’Brien’s
ability to replenish his retirement account prior to his retirement. This error is also not
harmless given the evidence that O’Brien is still many years from retirement, is in good
health, and has earned a significant salary in the past. (Accord, In re Montavon (Bankr.
Minn. 1985) 52 B.R. 99, 103 [applying similar factors and not exempting a retirement
account under federal bankruptcy law in case involving “a relatively young debtor with
good health, substantial earning capacity, and current ability to meet his and his
dependents’ regular living expenses”].)

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       We are accordingly compelled to reverse the trial court’s ruling declaring the full
amount of O’Brien’s four retirement accounts to be exempt and to remand for the court to
apply all of the relevant factors in deciding what portion of those accounts is necessary
for the support of O’Brien and his dependents. In light of this conclusion, we have no
occasion to consider Diagnostics’ further arguments that O’Brien did not provide
documents to corroborate his monthly household expenses and did not spell out with
specificity his likely earnings prior to retirement as well as his financial needs upon
retirement. These issues can be considered by the trial court in the first instance upon
remand.
                                      DISPOSITION
       We reverse and remand for further proceedings. Diagnostics is entitled to costs on
appeal.
       CERTIFIED FOR PUBLICATION.
                                                         _______________________, J.
                                                         HOFFSTADT
We concur:

__________________________, Acting P.J.
ASHMANN-GERST


__________________________, J.
CHAVEZ




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