Arizona allows various exemptions, protected by Arizona law, from most or all creditors after a judgment or bankruptcy filing. These exemptions are different from corporate or limited liability company protection from creditors after a judgment or bankruptcy filing.
Some exemptions under Arizona law are:
- Homestead Exemption – Up to $250,000 of equity in a primary residence either by a single person or a married couple – not $250,000 each if married. The exemption is automatic.
- Household Goods – Household goods up to $6,000 in value. This includes furniture and furnishings, appliances, and personal items.
- Personal Property – $300 cash, clothing up to $500, musical instruments up to $400, pets, a wedding ring up to $2,000, books up to $250, a bicycle, a firearm or a computer, all up to $1,000 each, a car up to $6,000 and a wheelchair. Also an exemption of up to $5,000 for tools of the trade.
What about life insurance? Yes, as long as it is a whole life policy. During the policy owner’s life the cash value of the insurance policy is fully protected after the policy has been in force for two years. A.R.S. 33-1126(A) (6). The policy must name a surviving spouse, child, parent, brother or sister, or any other dependent family member as beneficiary. The death benefit is also fully protected from the insured’s creditors in Arizona. A.R.S. 20-1131(A). But, if the estate of the insured is insolvent, the surviving spouse and children are given up to $20,000 of claim-free insurance proceeds only. A.R.S. 33-1126(A)(1).
Annuity contracts are treated much the same way as life insurance.
IRA and Deferred Compensation Accounts
Federal law protects the assets in a qualified retirement plan. This includes all 401(k), 403(b), and TSA accounts. Arizona law also protects assets in an Individual Retirement Arrangement (“IRA”) by statute. A.R.S. 33-1126(B). Since this is the case, putting an IRA into a trust is unnecessary if the objective is to protect the IRA from creditors.
Under Arizona law, an inherited IRA has additional protection in the context of bankruptcy court. Under various cases in Arizona and the US Supreme Court, (In re Thiem, Bktcy Ct AZ 1/19/2011, 107 AFTR 2d 2011-529), partly overruled in Clark v. Rameker (June 12, 2014), an Arizona statute appears to protect an Arizona resident’s inherited IRA assets from bankruptcy creditors. Only Arizona, Alaska, Florida, Idaho, Missouri, Ohio, North Carolina, and Texas offer this extended protection.