A couple did not lose their $550,000 exemption in a $1 million home simply because they transferred ownership several times among themselves, a trust and a limited liability corporation.
The bankruptcy court in Las Vegas cut the exemption down to $155,675 from the $550,000 permitted under Nevada law, on the theory that the debtors got an interest in their home fewer than 1,215 days before bankruptcy under Section 522(p)(1). Writing for the Ninth Circuit Bankruptcy Appellate Panel, Bankruptcy Judge Meredith A. Jury reversed on Feb. 24.
The couple purchased the home in 1994 and continuously resided there, at all times paying the mortgage and other expenses of ownership. Relying on estate planning advice from financial advisors and attorneys, they transferred ownership several times among themselves, a trust for which they were the trustees, and a limited liability corporation, where they were the sole owners.
Judge Jury began with the proposition that Nevada does not prescribe the nature of title required to invoke the generous homestead exemption. The state also declares that the exemption should be liberally construed to protect family homes.
Because the state does not limit the exemption to fee simple ownership, Judge Jury overturned the bankruptcy court, saying that Congress did not “envision” applying the limitation in Section 522(p)(1) to a home the couple continuously owned and occupied as their homestead.