CourtListener opinion 10459314

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SIGNED this 6th day of September, 2023. te □□ 

 tae MANSORI JAMES 
 UNITED STATES BANKRUPTCY JUDGE 

 UNITED STATES BANKRUPTCY COURT 
 FOR THE MIDDLE DISTRICT OF NORTH CAROLINA 
 WINSTON-SALEM DIVISION 
 In re: ) 
 ) 
 Catherine Mary Grossman Myatt, ) Case No. 23-50239 
 ) Chapter 7 
 Debtor. ) 
 □ 

 OPINION AND ORDER 
 OVERRULING TRUSTEE'S OBJECTION TO EXEMPTION 
 THIS MATTER comes before the Court on the Objection to Debtor's Claim for 
 Property Exemptions (Docket No. 14, the "Objection") filed by the chapter 7 trustee 
 (the "Trustee"). The Trustee objected to the exemption that Catherine Mary 
 Grossman Myatt (the "Debtor') claimed in her interest in her former husband's 
 401(k) retirement account. The Debtor asserts that the interest, which totals 
 $22,677.31, is fully exempt under N.C. Gen. Stat. § 1C-1601(a)(9) and 11 U.S.C. 
 § 522(b)(3). For the reasons discussed below, the Court will overrule the Objection, 
 finding that the Debtor possesses an interest in her former husband's 401(k) 
 account that is excluded from the bankruptcy estate. 

 JURISDICTION 
 The Court has jurisdiction over this contested matter under 28 U.S.C. § 1334. 
Under 28 U.S.C. § 157(a) and Local Civil Rule 83.11, the United States District 

Court for the Middle District of North Carolina has referred this proceeding to this 
Court. An objection to a debtor's claim of exemption is a core proceeding under 28 
U.S.C. § 157(b)(2)(B) in which this Court is statutorily authorized to enter a final 
judgment. The Court also has constitutional authority to enter a final order in this 
matter because, even though the exemption may derive from state law, "the right to 
exempt property from the bankruptcy estate is established by an express provision 

of the Bankruptcy Code (section 522) and is central to the public bankruptcy 
scheme." In re Carlew, 469 B.R. 666, 673 (Bankr. S.D. Tex.), aff'd sub nom. W. v. 
Carlew, No. 12-0913, 2012 WL 3002197 (S.D. Tex. July 23, 2012). 
 BACKGROUND 
 On April 17, 2023, the Debtor commenced the above-captioned case by filing a 
petition under chapter 7 of the Bankruptcy Code. Prior to the petition date, the 
Debtor and her former spouse, Joseph Myatt, were parties to a divorce proceeding 

in Davidson County District Court. The state court entered a Consent Order for 
Equitable Distribution & Alimony, which incorporated the agreed division of 
marital property executed by the Debtor and Mr. Myatt. (Docket No. 14, Ex. A, the 
"Consent Order").1 The Consent Order provides for the Debtor to receive a 
distributive award of $22,677.31 to be paid through a Qualified Domestic Relations 

1 The Trustee filed a copy of the Consent Order as an exhibit to his Objection. (Docket No. 14, Ex. A). 
Order (QDRO). As of the petition date, the funds remained in Mr. Myatt's 
retirement account. 
 The Debtor listed the award in her bankruptcy schedules under the category 

"other amounts someone owes you." (Docket No. 1). She also asserted an exemption 
under N.C. Gen. Stat. § 1C-1601(a)(9) and 11 U.S.C. § 522(b)(3) in the total funds of 
both her individual retirement account (IRA), valued at $50.00, and the distributive 
award of $22,677.31 still located in her ex-spouse's retirement account. In both 
Schedule A and on her exemptions Form 91C, the Debtor describes the distributive 
award in the same manner: 

 Per Consent Order for Equitable Distribution & Alimony, spouse will 
 transfer to Debtor from spouse retirement account rolling directly in to 
 Debtor's IRA. No cash proceeds will be withdrawn at the time of roll-
 over. 
(Docket No. 1). 
 The Trustee timely filed the Objection under Federal Rule of Bankruptcy 
Procedure 4003(b)(1) asserting that the Debtor does not own the $22,677.31 
distributive award nor any interest in the retirement plan that is to be the source of 
the payment. (Docket No. 14, ¶¶ 7, 9). Alternatively, even if the Consent Order does 
grant the Debtor an ownership interest in the distributive award or Mr. Myatt's 
401(k) account, the Trustee argues that any such award is not effective without a 
QDRO. (Docket No. 18, ¶ 5). In either scenario, the Trustee maintains that the 
Debtor is left only with a claim against her ex-spouse, which is property of the 
bankruptcy estate and does not qualify for the asserted exemptions. Finally, even if 
the Court finds the Debtor has an effective ownership interest in the $22,677.31, 
the Trustee counters that the funds are nevertheless property of the estate and may 
not be exempted under 11 U.S.C. § 522(b)(3) or N.C. Gen. Stat. § 1C-1601(a)(9) 
because they are not "retirement funds." (Docket No. 14, ¶ 10). See Clark v. 

Rameker, 573 U.S. 122, 127 (2014). The Trustee requests that the Court sustain the 
Objection and deny the Debtor's claimed exemption as to the $22,677.31 distributive 
award. 
 The Debtor filed a response to the Objection and supplemental brief, along 
with supporting caselaw, contending that the Debtor has a proprietary ownership 
interest in the distributive award of $22,677.31 located in Mr. Myatt's retirement 

account. (Docket No. 19). The Debtor argues that the execution of a QDRO is not a 
prerequisite for establishing that ownership interest and, therefore, the distributive 
award is properly exempted under N.C. Gen. Stat. § 1C-1601(a)(9) or 11 U.S.C. 
§ 522(b)(3). This finding, the Debtor concludes, strongly aligns with the intent of the 
North Carolina legislature to protect retirement assets. Given the "considerable 
amount of time between entry of an Equitable Distribution Order and a QDRO," the 
Debtor asserts that allowing a dependent spouse's interest in retirement accounts to 

be subject to creditors' collection efforts in that interim would be "against public 
policy and the purpose of the exemptions." (Docket No. 19, ¶ 17). Based on that 
reasoning, the Debtor asks that the Court overrule the Objection and allow the 
claimed exemptions in full. 
 The Court held a hearing on the Objection on June 27, 2023, at which Daniel 
C. Bruton appeared in his capacity as Trustee and Wendell Wes Schollander, III, 
appeared on behalf of the Debtor. The parties offered legal arguments on the extent 
of the Debtor's ownership interest in the distributive award and whether that 
interest may be properly exempted under state or federal law. At the conclusion of 

that hearing, the Court took the matter under advisement.2 
 Neither party requested an evidentiary hearing, instead submitting this 
matter for ruling on the papers, including the Consent Order, as well as the 
arguments of counsel. The Court subsequently entered an order reopening the 
evidentiary record for the limited purpose of determining whether Mr. Myatt's 
account is ERISA-qualified. (Docket No. 22). In response to the order, the Trustee 

and Debtor's counsel stipulated and agreed that, based upon a review of the 
relevant documentation, Mr. Myatt's retirement plan "is an ERISA-qualified 401(k) 
plan/account." (Docket No. 23). The Court accepts the stipulation of the parties on 
this issue and finds that Mr. Myatt possesses a 401(k) retirement account. 
 DISCUSSION 

 A. The Consent Order Established the Debtor's Ownership Interest 
 In North Carolina, a respective spouse's right to marital property is initially 
unvested during the marriage. See James R. Turner, 1 EQUITABLE DISTRIBUTION OF 
PROPERTY § 2:7 (4th ed. 2023). During the intact marriage, "title controls 
ownership" and "the marital interest is, in essence, a contingent interest which 

2 Both the Trustee's supplemental brief and the Debtor's response were filed untimely and in 
contravention to this Court's local rules. Neither party, however, asserted any prejudice from the 
late filings. Given the absence of any prejudice, and in the interest of deciding the Objection on a full 
consideration of the merits, the Court will consider the legal arguments presented in those late-filed 
briefs. 
springs into being only … upon the separation of the parties." Suzanne Reynolds, 2 
REYNOLDS ON NORTH CAROLINA FAMILY LAW § 6.05 (6th ed. 2022). Upon separation, 
each spouse possesses a respective interest in "marital property," which North 

Carolina defines as all real and personal property acquired by either spouse or both 
spouses during marriage but before separation; by comparison, separate property is 
any real or personal property acquired individually by a spouse before marriage, or 
by devise, descent, or gift. See N.C. Gen. Stat. § 50-20(b); Carpenter v. Carpenter, 
781 S.E.2d 828, 837 (N.C. Ct. App. 2016). There is also a third category, divisible 
property, which is any real or personal property acquired by either spouse after the 

date of separation, but before the date of distribution. Id. By statute, marital 
property includes "all vested and nonvested pension, retirement, and other deferred 
compensation rights[.]" N.C. Gen. Stat. § 50-20(b)(1). Only marital and divisible 
property are subject to equitable distribution in the event of divorce and there is a 
rebuttable presumption that property acquired after the date of marriage and 
before separation is marital property. See N.C. Gen. Stat. § 50-20(b)(1). 
 Upon separation, each spouse has a claim to an equitable distribution of the 

marital and divisible property. See N.C. Gen. Stat. § 50-20; Perlow v. Perlow, 128 
B.R. 412, 415 (E.D.N.C. 1991). At this stage, before a trial court has entered a final 
order for equitable division, neither spouse has a right to "particular marital 
property;" instead, both have "a right to the equitable distribution of that property, 
whatever a court should determine that property is." Wilson v. Wilson, 325 S.E.2d 
668, 670 (N.C. Ct. App. 1985). Until the trial court enters a final distribution order, 
a spouse's interest in marital property, including any retirement benefits, remains 
unfixed and the spouse is left only with a general right to equitable distribution. See 
Kroh v. Kroh, 571 S.E.2d 643, 645 (N.C. Ct. App. 2002) (holding that wife "[did not] 

have a legal claim" to spouse's retirement account where equitable distribution 
proceeding remained pending). 
 A final order resolving an equitable distribution proceeding, however, fixes 
the parties' rights and transforms the more general right to equitable distribution 
into concrete interests in specific property. See, e.g., Welch v. Welch, 886 S.E.2d 921, 
924 (N.C. Ct. App. 2023); Patterson ex rel. Jordan v. Patterson, 529 S.E.2d 484, 490 

(N.C. Ct. App. 2000); In re Chilson, No. 1:15-CV-00020-MR, 2016 WL 1079149, at *6 
(W.D.N.C. Mar. 18, 2016). After being signed and entered by the trial court, an 
equitable distribution order such as the Consent Order is treated as an award 
under N.C. Gen. Stat. § 50-20.1 and each spouse's interests "vest" on the date of the 
order's entry. See Welch, 886 S.E.2d at 924 ("Ms. Welch's interest in the Schwab 
IRA vested in October 2008 when the [equitable distribution consent order] was 
entered.") (internal citation omitted); Patterson, 529 S.E.2d at 490 (finding language 

dividing a retirement plan, which was "incorporated into the Consent Order 
executed by the trial court pursuant to an equitable distribution claim," was enough 
"to effectuate a valid assignment of retirement benefits"); Chilson, 2016 WL 
1079149, at *6 (holding that the valid domestic relations order "created the 
[debtor's] ownership interest in the [retirement] account in the first place"); In re 
Seddon, 255 B.R. 815, 818 (Bankr. W.D.N.C. 2000) ("The debtor in this case 
obtained an interest in her ex-husband's CSRS pension through equitable 
distribution orders in state court."). 
 The entry of an equitable distribution order, therefore, represents a key 

moment in a divorce-related division of property interests. If the Debtor and her ex-
spouse were separated and still in the midst of a pending proceeding, the Trustee 
may be correct that the Debtor would merely possess a claim or right to equitable 
distribution rather than an interest in specific property.3 However, in this case the 
Debtor has already concluded the proceeding through entry of the Consent Order. 
The Debtor's interest is no longer an amorphous, unknown claim to as-yet- 

undivided marital property; rather, the Debtor's interests are now explicated and 
firmly fixed in the Consent Order. The terms of the Consent Order, signed and 
entered by the state court on October 21, 2022, "constitute a full and final resolution 
of [the Debtor's] claims for Equitable Distribution, Post-Separation 
Support/Alimony and Attorney Fees, and [Mr. Myatt's] claims for Equitable 
Distribution." (Docket No. 14, Ex. A, p. 2). 
 Separation agreements incorporated into court orders are construed and 

interpreted in the same manner as other contracts. Jones v. Jones, 824 S.E.2d 185, 

3 The Debtor also argued that she had a property interest in the retirement funds "from the moment 
of separation," (Docket No. 20), relying on a line of cases from the North Carolina Court of Appeals 
and Federal District Courts finding that a dependent spouse has a "proprietary" interest in military 
pensions that exists prior to entry of any equitable distribution order. See Walston v. Walston (In re 
Walston), 190 B.R. 66, 69 (E.D.N.C. 1995); Brown v. Brown, 886 S.E.2d 656, 663 (N.C. Ct. App. 
2023). Because the prepetition Consent Order resolved the Debtor's equitable distribution proceeding 
and fixed her ownership interest in the retirement funds, the Court need not address whether the 
Debtor held any interest prior to the order's approval and entry by the Davidson County District 
Court. 
195 (N.C. Ct. App. 2019) (citing Gilmore v. Garner, 580 S.E.2d 15, 17 (N.C. Ct. App. 
2003)). As with any other contract, a marital agreement "encompasses not only its 
express provisions but also all such implied provisions as are necessary to effect the 

intention of the parties unless express terms prevent such inclusion." In re Estate of 
Cracker, 850 S.E.2d 506, 509 (N.C. Ct. App. 2020) (quoting Lane v. Scarborough, 
200 S.E.2d 622, 624-25)). 
 Here, paragraph 7 of the Consent Order pertains to the division of marital 
property, with separate subparagraphs allotted to real property, motor vehicles, 
bank and financial accounts, and retirement accounts. Subparagraph (d), which 

pertains to retirement assets, provides that, "[o]ther than the distributive award 
mentioned herein," the Debtor and Mr. Myatt would retain their respective 
interests, "whether vested or not, in all retirement plans, defined benefit plans, 
defined contribution plans, pensions, IRA's, 401K's, stocks, bonds, and other 
intangibles currently held in [their own] name." (Docket No. 14, Ex. A, p. 5, ¶ 7(d)) 
(emphasis added).4 The referenced "distributive award" is defined further below in 
paragraph 10 of the Consent Order: 

 [The Debtor] and [Mr. Myatt] have determined and agreed upon the 
 date of separation value and division of all marital and divisible 

4 The complete section within the Consent Order discussing treatment of retirement accounts reads: 
 Retirement Accounts/Investment Accounts/Life Insurance: Other than the distributive award 
 mentioned herein, [Mr. Myatt] shall retain his interest, whether vested or not, in all 
 retirement plans, defined benefit plans, defined contribution plans, pensions, IRA's, 401K's, 
 stocks, bonds, and other intangibles currently held in his name. [The Debtor] shall retain her 
 interest, whether vested or not, in all retirement plans, defined benefit plans, defined 
 contribution plans, pensions, IRA's, 40IK's, stocks, bonds, and other intangibles currently 
 held in her name. This division of the individual retirement accounts, defined benefit plans, 
 defined contribution plans, pensions, IRA's, 401K's, stocks, bonds, bank accounts and other 
 intangibles is a fair and reasonable division of property. 
(Docket No. 14, Ex. A, p. 5, ¶ 7(d)). 
 property. The parties agree that [the Debtor] is entitled to a distributive 
 award of a sum certain of $22,677.31. [Mr. Myatt] shall make this 
 payment through a Qualified Domestic Relations Order (QDRO) to be 
 drafted by [the Debtor's] attorney. [The Debtor's] attorney shall ensure 
 that said QDRO is drafted in a timely manner. [The Debtor] and [Mr. 
 Myatt] shall cooperate in providing and signing any and all necessary 
 documents to ensure that the QDRO is completed in a timely manner. 

(Docket No. 14, Ex. A, p. 6, ¶ 10). The phrase "other than the distributive award 
mentioned herein" links paragraph 7(d), which discusses the spouses' retirement 
accounts, to paragraph 10's discussion of the distributive award of $22,677.31. 
Reading the two connected paragraphs together shows that the distributive award 
is to be paid by Mr. Myatt through one of the sources discussed in paragraph 7(d), 
such as a retirement plan, IRA, 401(k), stocks, or bonds. Paragraph 10 further 
states that Mr. Myatt will make the payment through a QDRO, which indicates 
that the source of the payment is either a 401(k) plan or is ERISA-qualified, or 
both.5 The Consent Order, therefore, closely connects the distributive award to the 
division and distribution of the parties' retirement accounts. In fact, subparagraph 
(d) contains the only reference to the distributive award within paragraph 7. 
Therefore, based on its language and context, the Court finds that the Consent 
Order reflects the parties' agreement that the Debtor is entitled to $22,677.31 from 

5 As defined by the Employment Retirement Income Security Act (ERISA), which covers defined 
benefit plans and defined contribution plans, a QDRO "creates or recognizes the existence of an 
alternate payee's right to, or assigns to alternate payee the right to, receive all or a portion of the 
benefits payable with respect to a participant under a plan." 29 U.S.C. § 1056(d)(3)(B)(i). The QDRO 
allows the Debtor to transfer retirement funds from Mr. Myatt's 401(k) account to her own IRA tax 
free, at which point the funds therein would be afforded the same treatment as an IRA the Debtor 
would have possessed and funded through her own employment. See 1 Vorris J. Blankenship, TAX 
PLANNING FOR RETIREES § 5.04 (2023); IRC § 408(d)(6); IRS Publication 590A (2022). 
Mr. Myatt's 401(k) retirement account and, accordingly, orders Mr. Myatt to make 
the payment through a QDRO in a timely manner. 
 In sum, by the time the Debtor filed her petition, her rights had transformed, 

through entry of the Consent Order, from a more general right to an equitable 
distribution into a fixed right to specific property interests. As stated therein, the 
Consent Order "constitute[s] a full and final resolution" of the Debtor's and Mr. 
Myatt's claims for equitable distribution, meaning it is final order resolving all of 
the parties' equitable distribution issues and distributing the marital property. See 
Whitworth v. Whitworth, 731 S.E.2d 707, 714, 710 (N.C. Ct. App. 2012) (finding that 

"final disposition occurred … with the entry of the final equitable distribution 
consent order/judgment."). The Consent Order not only vested the Debtor's interests 
in certain property, such as the $22,677.31 interest in the 401(k) retirement 
account, but also extinguished any contingent interests she may have had to 
marital property that was distributed to her ex-spouse. James R. Turner, 3 
EQUITABLE DISTRIBUTION OF PROPERTY § 9.5 (4th ed. 2023) ("An order transferring 
an asset to one spouse destroys any property right that the other spouse may have 

in the asset."). The $22,677.31 interest provided to the Debtor is not akin to 
distributive cash awards that are untethered to specific marital property; rather, 
the interest was directly linked to Mr. Myatt's 401(k) retirement account. Given its 
language and finality, the Court finds that, upon entry of the Consent Order, the 
Debtor's general right to equitable distribution became a specific, vested property 
interest in the amount of $22,677.31 in Mr. Myatt's 401(k) retirement account. 
 B. The Absence of a QDRO Does Not Affect the Debtor's Ownership Interest 
 The Trustee argues that the distributive award provided to the Debtor in the 
Consent Order is not effective without a QDRO. (Docket No. 18, ¶ 5). Although the 

Trustee is correct that the Consent Order would not qualify as a QDRO, that fact 
does not preclude a finding that the Consent Order vested the Debtor's ownership 
interest in the amount of $22,677.31 in Mr. Myatt's 401(k) account. Rather, the 
division of the parties' property interests was completed upon entry of the Consent 
Order; the envisioned QDRO is merely a procedural device for implementing the 
terms of that Consent Order. James R. Turner, 2 EQUITABLE DISTRIBUTION OF 

PROPERTY § 6:20 (4th ed. 2023). 
 State courts have adopted a two-pronged approach to dividing retirement 
benefits as part of an equitable distribution of marital property— "[t]he first order 
is the underlying substantive order stating the rights of the parties to the 
retirement benefits at issue," while the second "is a DRO6 – a separate order aimed 
at the plan administrator, directing it to send a separate benefit check to the 
nonowning spouse." Id. This divided approach reflects a deliberate choice made by 

state courts. Attempting to draft the initial substantive order to also meet the 
requirements of a QDRO "is rarely advisable, as such an order will contain many 
terms involving other assets and issues" and may simply "confuse the plan 
administrator, who could respond by refusing to qualify the order." Id. Instead, "the 

6 As noted by Turner, "a state court cannot enter a qualified domestic relations order. All it can do is 
enter a domestic relations order" and the "plan administrator determines whether the order is 
qualified – whether a Q can be added to the DRO." James R. Turner, 2 EQUITABLE DISTRIBUTION OF 
PROPERTY § 6:20 (4th ed. 2023). 
best procedure is almost always to draft the DRO as a separate document, focusing 
only upon dividing retirement benefits in a form which the plan administrator will 
recognize." In line with this rationale, a "majority of states" adhere to the "general 

rule in modern practice" that a DRO "is not a substantive order at all" but is instead 
"a procedural device for enforcing the terms of the underlying substantive order." 
Id. (citing White v. White, 568 S.E.2d 283, 285 (N.C. Ct. App. 2002), aff'd, 579 S.E.2d 
248 (N.C. 2003)). As the Ninth Circuit Court of Appeals remarked, "the QDRO 
provisions of ERISA do not suggest that [the alternate payee] has no interest in the 
plan [ ] until she obtains a QDRO, they merely prevent her from enforcing that 

interest until the QDRO is obtained." Trs. of Dirs. Guild of Am.-Producer Pension 
Benefits Plans v. Tise, 234 F.3d 415, 421 (9th Cir. 2000) (quoting In re Gendreau, 
122 F.3d 815, 819 (9th Cir. 1997)). 
 North Carolina courts have also recognized this majority rule, finding that a 
QDRO is unnecessary to establish a spouse's right to retirement benefits where the 
underlying equitable distribution order or divorce decree has already done so. In 
2000, the North Carolina Court of Appeals held that a consent equitable 

distribution order – not the QDRO – vested retirement benefits in the ex-spouse. 
Patterson, 529 S.E.2d at 491. The court noted that, "while entry of a QDRO may 
have been contemplated, the Consent Order reflects that Carolyn's interest existed 
separate from any prospective QDRO." Id. The court explained that, while the 
QDRO would allow the pension benefits to flow directly to both parties in the 
proportion ordered by the court in the consent order, "[t]he purpose of the QDRO 
was to ‘preserve' Carolyn's interest, not create it." Id. 
 The same appellate court reached a similar conclusion earlier this year in 

Welch, 886 S.E.2d at 925, finding that a spouse's motion for a DRO to transfer a 
former spouse's IRA account was "not a crafty means to amend the distribution 
awarded in a [consent equitable distribution order]," but was merely an attempt "to 
effectuate the judgment" without altering the original order. The Court reiterated 
the holding in Patterson and determined that the requested DRO was merely 
"adjunct" to the underlying distribution order. Id. at 925-26. The court further held 

that the spouse's motion for a DRO more than 10 years after entry of the divorce 
judgment was not barred by the 10-year statute of limitations on actions to enforce 
a judgment, as the motion sought to implement a term of a divorce judgment and 
was not a separate action to enforce that judgment. Id. The court concluded that "to 
hold otherwise would deprive spouses of their vested property under an equitable 
distribution order if the property were not distributed in a timely manner as 
happened here." Id. 

 Federal courts applying North Carolina law have similarly found that 
underlying equitable distribution orders or divorce decrees establish the property 
interest and QDROs are tools for implementing those rights. See, e.g., Chilson, 2016 
WL 1079149, at *6 (finding that "technical shortcomings [in a DRO] may preclude 
the plan administrator from paying such benefits, [but] they have no effect on the 
validity of the domestic relations order which created the ownership interest in the 
first place"); Seddon, 255 B.R. at 818 ("The debtor in this case obtained an interest 
in her ex-husband's CSRS pension through equitable distribution orders in state 
court."); Zeitler v. Martel, 255 B.R. 172, 177 (E.D.N.C. 1999) (finding the absence of 

a QDRO did not impact the appellee's right to payments awarded in the divorce 
dissolution decree), aff'g In re Zeitler, 213 B.R. 457 (Bankr. E.D.N.C. 1997). 
 The Trustee accurately states that the Consent Order does not qualify as a 
QDRO under ERISA, but that was never its intended purpose. Instead, the 
Davidson County District Court, and the parties themselves, envisioned a second 
order – a QDRO – that, if approved by the plan administrator as such, would 

implement the Debtor's rights established and recognized under the Consent Order 
and allow for transfer of the retirement funds into the Debtor's IRA. The absence of 
a QDRO does not impact the Debtor's $22,677.31 interest in the 401(k) retirement 
account; that interest already vested in the Consent Order.7 

7 In his supplemental brief, the Trustee points to several cases from the Fourth Circuit Court of 
Appeals and this district he claims support his argument that any interest the Debtor may have in 
the 401(k) retirement account is "effectively trump[ed]" by ERISA and ineffective without a QDRO. 
(Docket No. 18, ¶¶ 7-10) (citing, e.g., Metropolitan Life Ins. Co. v. Petit, 164 F.3d 857 (4th Cir. 1998); 
Boyd v. Metropolitan Life Ins. Co., 636 F.3d 138 (4th Cir. 2011); Davenport v. Davenport, 146 F. 
Supp.2d 770 (M.D.N.C. 2001); In re Dye, 2004 WL 2249503 (Bankr. M.D.N.C. 2004)). The decisions 
the Trustee cites for support, however, addressed wholly different questions than that presented 
here. In Petit, Boyd, and Davenport, the courts considered whether a plan administrator properly 
distributed life insurance proceeds following the death of the former spouse and policy holder. Petit, 
164 F.3d at 859; Boyd, 636 F.3d at 138; Davenport, 146 F. Supp.2d at 774-76. In those cases, the 
question was not whether a domestic relations order vested an interest in a debtor, but whether an 
order or consent agreement was effective to implement, through a plan administrator, an interest in 
an ERISA-qualified plan. In Dye, the court considered whether an equitable distribution order, 
which granted the non-filing spouse "a lien" against the debtor's 401(k) account and profit-sharing 
plan, was enforceable given the anti-alienation provisions of ERISA. Dye, 2004 WL 2249503, at *6. 
The court concluded that, because the order "does not qualify as a QDRO, it does not create a lien or 
other interest that can be enforced against Debtor's interests in the ERISA plans[.]" Id. (emphasis 
added). The Court has carefully reviewed the caselaw proffered by the Trustee, but it finds those 
cited decisions make no holdings apposite to this case. Critically, none of the decisions conflict with 
this Court's determination here that, while a QDRO is necessary to implement a debtor's interest in 
C. The Distributive Award is Excluded From The Debtor's Bankruptcy Estate 
 Having determined that the Consent Order vested the Debtor's ownership 
interest in the $22,677.31 within Mr. Myatt's 401(k) account, the Court must then 

consider whether first, the interest is part of the bankruptcy estate and, if so, 
whether it is exempt under either or both North Carolina law and the Bankruptcy 
Code. If the Court determines that the Debtor's interest is excludable from the 
bankruptcy estate altogether, it need not consider whether it is exemptible from the 
estate under federal or state law. See Chilson, 2016 WL 1079149, at *5. 
 The filing of a bankruptcy petition creates an estate, consisting of "all legal or 

equitable interests of the debtor in property as of the commencement of the case … 
wherever located or by whomever held." 11 U.S.C. § 541(a)(1). "In enacting the 
[Bankruptcy] Code, Congress sought to define broadly a debtor's estate, but also 
recognized that certain property should be excluded from the estate." Shumate v. 
Patterson, 943 F.2d 362, 365 (4th Cir. 1991) (citing 11 U.S.C. § 541(b), (c)(2)), aff'd, 
504 U.S. 753 (1992). 
 In interpreting the language of 11 U.S.C. § 541(c)(2), the Supreme Court 

confirmed that a debtor may exclude from property of the estate any interest – as a 
plan participant – in a plan or trust that includes a restriction on transfer 
enforceable under nonbankruptcy law, including an ERISA-qualified plan. 
Patterson v. Shumate, 504 U.S. 753, 758 (1992). Similarly, despite some 
disagreement, "[m]ost courts addressing the issue … have determined that a 

an ERISA-qualified retirement plan, the initial equitable distribution order can be enough on its own 
to vest that interest in the debtor. 
debtor's interest [as an alternate payee] in the undistributed funds of an ERISA-
qualified plan is not property of the bankruptcy estate." In re Dyckman, No. 1:10-bk-
08586-MDF, 2012 WL 1302613, at *4 (Bankr. M.D. Pa. Apr. 16, 2012) (citing Nelson 

v. Ramette (In re Nelson), 322 F.3d 541, 545 (8th Cir. 2003)). Under this line of 
reasoning, "[t]herefore, a person who acquires an interest in an ERISA plan via a 
QDRO can exclude that interest from a bankruptcy estate in the same way that the 
plan participant [himself] could have excluded it." Nelson, 322 F.3d at 545; see also 
Ostrander v. Lalchandani (In re Lalchandani), 279 B.R. 880 (B.A.P. 1st Cir. 2002); 
In re Farmer, 295 B.R. 322, 324-25 (Bankr. W.D. Wis. 2003); In re Hthiy, 283 B.R. 

447, 451 (Bankr. E.D. Mich. 2002); Seddon, 255 B.R. at 819. Because the QDRO is 
merely a procedural device, courts have also found that a debtor's interest is 
excluded even in the absence of a QDRO, where an equitable distribution order or 
divorcee decree establishes the debtor's interest. See, e.g., Chilson, 2016 WL 
1079149, at *5-6; Walsh v. Dively (In re Dively), 551 B.R. 570, 575-76 (W.D. Pa. 
2016); Wilson v. Wilson (In re Wilson), 158 B.R. 709, 711 (Bankr. S.D. Ohio 1993). 
 In Chilson, the District Court for the Western District of North Carolina 

summarized this reasoning: 
 Here, it is undisputed that the Chilsons entered into a separation 
 agreement with the intent to give the Debtor an interest in the TIAA-
 CREF account as of the date of their divorce. It is further undisputed 
 that the state court entered a domestic relations order incorporating the 
 Chilsons' agreement and awarding the Debtor a portion of that account. 
 Accordingly, notwithstanding the absence of a "qualified" domestic 
 relations order, the Debtor obtained a legal and equitable ownership 
 interest in the ERISA-qualified TIAA-CREF account as of the date of 
 her divorce from Mr. Chilson. Because it is ERISA-qualified, the 
 Debtor's interest in that account is, by its nature, excluded from the 
 bankruptcy estate and thereby not subject to turnover. 

Chilson, 2016 WL 1079149, at *6 (citing Patterson, 504 U.S. at 759); see also Walsh, 
551 B.R. at 576 (finding that, despite the absence of a QDRO, the bankruptcy court 
properly excluded debtor's prepetition vested interest in ERISA-qualified plan from 
the estate); Wilson v. Wilson, 158 B.R. 709, 711 (Bankr. S.D. Ohio 1993) 
(determining retirement funds were not part of debtor-plaintiff's bankruptcy estate, 
even though funds were still held in defendant's retirement account). 
 Here, the Debtor and Mr. Myatt similarly entered into a separation 
agreement awarding the Debtor an interest in Mr. Myatt's 401(k) retirement 
account, which the state court then incorporated into the Consent Order. The lump-
sum distribution owed to the Debtor from Mr. Myatt's 401(k) plan has not yet been 
distributed and is, therefore, still held in trust by an ERISA plan. As noted by the 

Eight Circuit Court of Appeals, "[i]t logically follows that the funds still held in 
trust are subject to ERISA's anti-alienation provision, and therefore excludable 
from a bankruptcy estate under § 541(c)(2)." Nelson, 322 F.3d at 544. Despite the 
absence of a QDRO, the Debtor's ownership interest in Mr. Myatt's ERISA-qualified 
401(k) account is therefore excluded from her bankruptcy estate and is not subject 
to this Court's jurisdiction. Chilson, 2016 WL 1079149, at *6 (citing Patterson, 504 
U.S. at 759)). 8 

8 Alternatively, if Mr. Myatt's retirement plan was an IRA or another non-ERISA plan, thereby 
including the Debtor's interest in the distributive award in her bankruptcy estate, that interest 
would likely be exemptible under N.C. Gen. Stat. § 1C-1601(a)(9). "Plans that have both the same 
tax favored treatment and serve the same purpose as retirement plans are more likely to be exempt 
under" North Carolina law. In re Jolly, 567 B.R. 480, 487 (Bankr. M.D.N.C. 2017) (citing In re 
 CONCLUSION 

 This outcome is supported both by current law and the public policy 
interest in protecting retirement assets. The Court shares the Debtor's concerns 
that finding marital retirement funds open to creditor claims in the intervening 
time between entry of an equitable distribution order and the transfer of the funds 
through a QDRO would leave dependent spouses vulnerable to losing their entitled 
retirement benefits. (Docket No. 19, ¶ 17). The Debtor correctly notes that a 
considerable amount of time could elapse between entry of an equitable distribution 

order and a QDRO, which is not unexpected given that the requirements for 
qualifying a DRO "are difficult to meet" and "depend upon technical points of 
pension law outside the competence of most family law judges and attorneys." 
James R. Turner, 2 EQUITABLE DISTRIBUTION OF PROPERTY § 6:20 (4th ed. 2023). The 
Court sees no indication that Congress or the North Carolina legislature would have 
intended to expose retirement savings to creditor claims while debtors pursue the 

Garner, No. 04-13618C-7G, 2005 WL 1288335, at *4 (Bankr. M.D.N.C. Apr. 29, 2005)). Here, the 
Debtor's interest in the retirement funds would still receive the same tax treatment after the 
transfer to her own IRA, including the "substantial" tax penalty that applies to withdrawals made 
before the Debtor turns 59 1/2. See Rousey v. Jacoway, 544 U.S. 320, 327 (2005). The Debtor's 
interest in the 401(k) retirement account also serves the same purpose as any other retirement plan. 
After completing the transfer to her own IRA, the funds will continue to serve the same purpose as 
before the Debtor's divorce – funding for her retirement. See In re West, 507 B.R. 252, 261 (Bankr. 
N.D. Ill. 2014). To the extent it is applicable, the Court also finds it likely that the Debtor's interest 
meets the standard set forth in Clark v. Rameker, 573 U.S. 122 (2014) to be claimed as exempt under 
11 U.S.C. § 522(b)(3)(C). Based on its characteristics, the Debtor's interest in the 401(k) account 
represents funds "set aside for the day when an individual stops working." Id. at 127. The QDRO will 
allow the Debtor to roll over the funds, tax free, to her own retirement account, at which point it will 
be subject to all the tax benefits and detriments characteristic to all traditional IRAs. Compare to id. 
at 129 (finding inherited IRA allowed the holder to withdraw the entire balance at any time and 
without penalty). The Debtor's retirement benefits, in the form of the distributive award, also retain 
their intended purpose both pre and post-transfer; at every stage, the $22,677.31 within Mr. Myatt's 
401(k) account serves as the Debtor's respective share of the retirement funds within the account. 
complicated, court and IRS-approved, means for transferring and preserving their 
established benefits. The contemplated transfer to the Debtor's IRA does not 
alter the $22,677.31 amount's nature as retirement funds or change the tax 

attributes; "a retirement plan transferred pursuant to a QDRO is done expressly 
for the purpose of preserving the retirement nature of the plan." In re West, 507 
B.R. 252, 261 (Bankr. N.D. Ill. 2014). In short, the Debtor is not obtaining access 
to a cash windfall but is instead maintaining her existing interest in retirement 
funds with all attendant tax benefits and penalties. 
 Based upon the foregoing, THE COURT FINDS as follows: 

1. As recognized by and through the Consent Order entered by the Davidson 
 County District Court, the Debtor has an ownership interest in the sum of 
 $22,677.31 within her ex-spouse's 401(k) retirement account, which is not 
 impacted by the absence of an executed QDRO. 
2. The Debtor's ownership interest in the funds currently in her ex-spouse's 
 401(k) account is excluded from her bankruptcy estate and is not subject to 
 this Court's jurisdiction. 

 Therefore, IT IS HEREBY ORDERED that the Trustee's Objection is 
OVERRULED. 

 END OF DOCUMENT 
 PARTIES TO BE SERVED 
 Catherine Myatt - Ch. 7 
 #23-50239 
Wendell Wes Schollander, III 
via cm/ecf 
Daniel C. Bruton, Trustee 
via cm/ecf 
Catherine Mary Grossman Myatt 
1706 Jades Way 
Thomasville, NC 27360