The 8th Circuit Bankruptcy Appellate Panel has issued a new opinion that is really causing a lot of anxiety and uncertainty about the exemption status in bankruptcy cases of retirement accounts awarded to debtors during a divorce case.

If a debtor is awarded a portion of their ex-spouse’s retirement account in a divorce proceeding, is that account protected in bankruptcy? Until a few months ago the majority opinion was yes, but that is all changed since the BAP issued the Lerbakken opinion.

In Lerbakken, the debtor was awarded one-half of his wife’s 401(k) retirement account in a divorce proceeding. He subsequently filed Chapter 7 and the bankruptcy trustee claimed his interest in the retirement.  The bankruptcy judge ruled in favor of the trustee citing the United States Supreme Court’s opinion of Clark v Rameker, a case involving inherited IRA accounts.


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92135139.jpg  The date a Chapter 7 petition is filed is generally the cut off date for measuring the property of a debtor, but two major exceptions exist.  Property acquired by bequest, devise or inheritance or marital settlements received within 180 days after the case is filed is also included in the bankruptcy estate. Bankruptcy Code