ARIZONA REVISED STATUTES

TITLE 33.  PROPERTY

CHAPTER 8.  HOMESTEAD AND PERSONAL PROPERTY EXEMPTION

ARTICLE 2.  PERSONAL PROPERTY EXEMPTION 

� 33-1126.  Money benefits or proceeds; exception

A. The following property of a debtor shall be exempt from execution, attachment or sale on any process issued from any court:

1. All money received by or payable to a surviving spouse or child upon the life of a deceased spouse, parent or legal guardian, not exceeding twenty thousand dollars.

2. The earnings of the minor child of a debtor or the proceeds thereof by reason of any liability of such debtor not contracted for the special benefit of such minor child.

3. All monies received by or payable to a person entitled to receive child support or spousal maintenance pursuant to a court order.

4. All money, proceeds or benefits of any kind to be paid in a lump sum or to be rendered on a periodic or installment basis to the insured or any beneficiary under any policy of health, accident or disability insurance or any similar plan or program of benefits in use by any employer, except for premiums payable on such policy or debt of the insured secured by a pledge, and except for collection of any debt or obligation for which the insured or beneficiary has been paid under the plan or policy and except for payment of amounts ordered for support of a person from proceeds and benefits furnished in lieu of earnings which would have been subject to such order and subject to any exemption applicable to earnings so replaced.

5. All money arising from any claim for the destruction of, or damage to, exempt property and all proceeds or benefits of any kind arising from fire or other insurance upon any property exempt under this article.

6. The cash surrender value of life insurance policies where for a continuous unexpired period of two years such policies have been owned by a debtor and have named as beneficiary the debtor's surviving spouse, child, parent, brother or sister, or any other dependent family member, in the proportion that the policy names any such beneficiary, except that, subject to the statute of limitations, the amount of any premium which is recoverable or avoidable by a creditor pursuant to title 44, chapter 8, article 1, with interest thereon, shall not be exempt. The exemption provided by this paragraph does not apply to a claim for the payment of a debt of the insured or beneficiary that is secured by a pledge or assignment of the cash value of the insurance policy or the proceeds of the policy. For the purposes of this paragraph "dependent" means a family member who is dependent on the insured debtor for not less than half support.

7. An annuity contract where for a continuous unexpired period of two years such contract has been owned by a debtor and has named as beneficiary the debtor, debtor's surviving spouse, child, parent, brother or sister, or any other dependent family member, except that, subject to the statute of limitations, the amount of any premium, payment or deposit with respect to such contract is recoverable or avoidable by a creditor pursuant to title 44, chapter 8, article 1 shall not be exempt. The exemption provided by this paragraph does not apply to a claim for a payment of a debt of the annuitant or beneficiary that is secured by a pledge or assignment of the contract or its proceeds. For the purposes of this paragraph, "dependent" means a family member who is dependent on the debtor for not less than half support.

8. Any claim for damages recoverable by any person by reason of any levy upon or sale under execution of his exempt personal property or by reason of the wrongful taking or detention of such property by any person, and the judgment recovered for such damages.

9. A total of one hundred fifty dollars held in a single account in any one financial institution as defined by � 6-101. The property declared exempt by this paragraph is not exempt from normal service charges assessed against the account by the financial institution at which the account is carried.

B. Any money or other assets payable to a participant in or beneficiary of, or any interest of any participant or beneficiary in, a retirement plan under section 401(a), 403(a), 403(b), 408, 408A or 409 or a deferred compensation plan under section 457 of the United States internal revenue code of 1986, as amended, shall be exempt from any and all claims of creditors of the beneficiary or participant. This subsection shall not apply to any of the following:

1. An alternate payee under a qualified domestic relations order, as defined in section 414(p) of the United States internal revenue code of 1986, as amended. The interest of any and all alternate payees is exempt from any and all claims of any creditor of the alternate payee.

2. Amounts contributed within one hundred twenty days before a debtor files for bankruptcy.

3. The assets of bankruptcy proceedings filed before July 1, 1987.

See note below regarding applicability of the following exemption for retirement plans.

C. Any person the age of eighteen years or over, married or single, who resides within this state and who does not exercise the homestead exemption under article 1 of this chapter may claim as a personal property homestead exempt from all process prepaid rent, including security deposits as provided in section 33-1321, subsection A, for the claimant's residence, not exceeding the lesser of one thousand dollars or one and one-half months' rent.

D. Nothing in this section exempts property from orders which are the result of a judgment for arrearages of child support or for a child support debt.

Note regarding availability of exemption for retirement plans.

ARS � 33-1126 has been found to be invalid as it applies to ERISA qualified plans because federal ERISA law preempts the field, preventing a state statute from giving an exemption to such plans. However, if the plan qualifies as a spendthrift trust under applicable state law, it still be protected from the bankruptcy trustee. ERISA plans set up by an employer in a spendthrift trust have specifically been found to be protected in bankruptcy. Pitrat v. Garland, 947 F.2d 419 (9th Cir. Ariz, 1991); John Hancock Mutual Life Insurance v. Watson (In re Kincaid), 917 F.2d 1162 (9th Cir.1990).

IRAs do not have this problem. Courts have held that non-preempted language of exemption in ARS � 33-1126  relating to individual retirement accounts (IRAs) could be severed from preempted language relating to ERISA plans [29 U.S.C.A. � 1144(a)], thereby not preclude the exemption claim for an IRA. In re Herrscher, 121 B.R. (29 Bkrtcy.D.Ariz. 1989). But see also In re Siegel, 105 B.R. 556 (D.Ariz.1989); In re Flindall, 105 B.R. 32, (Bkrtcy.D.Ariz.1989), subsequently reversed 992 F.2d 224.

Reference to "the United States internal revenue code of 1986" is to Title 26 of the United States Code.  The code sections cited by the above statute are titled:

Sec. 401. Qualified pension, profit-sharing, and stock bonus plans

(a) Requirements for qualification

Sec. 403. Taxation of employee annuities

(a) Taxability of beneficiary under a qualified annuity plan

(b) Taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school

Sec. 408. Individual retirement accounts

(a) Individual retirement account

Sec. 409. Qualifications for tax credit employee stock ownership plans

Sec. 414. Definitions and special rules

(p) Qualified domestic relations order defined

The Federal code may be viewed after a searched at http://uscode.house.gov/usc.htm. To find the desired section at that site, complete the following fields in their first search form:

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Title:  26
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Link to Arizona State Legislature current Arizona Revised Statutes; this section 33-1126.