In California, a High Earner's IRA Is Not Beyond a Creditor's Reach

November 2026

Retirement accounts are often assumed to be untouchable. A recent California decision shows how conditional that protection can be. In Bagby v. Davis, 118 Cal. App. 5th 652 (2026), the California Court of Appeal allowed a judgment creditor to levy on IRAs that traced to a cashed-out life insurance policy previously held in a pension plan.

Two points decided the case. First, the life insurance exemption ended when the policy was surrendered — protection attached to the policy did not simply follow the proceeds into a new form. Second, California protects IRA funds only to the extent necessary for the debtor's support, and the debtor, with about $500,000 of annual income, failed that means test. The court also applied the forum state's exemption law — California's — and rejected the debtor's claim to Florida's more protective law, even though exemption planning is often built around where a debtor lives or where an account is held.

For judgment creditors and buyers, the case is a reminder that exemption analysis is fact-specific diligence, not a label on an account statement: what an asset used to be, how it was converted, what the debtor earns, and which state's law the enforcing court applies can each change what is actually collectible.

Sources: Wealth Strategies Journal — https://wealthstrategiesjournal.com/2026/10/28/daily-update-oct-28-irs-grants-late-qtip-election-to-defer-state-estate-tax-after-preparer-error/