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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The United States Supreme Court has ruled that inherited Individual Retirement Accounts (IRAs) are not protected under federal exemption laws.   Clark  v. Ramekers, 573 U.S. ____ (2014).  Even though inherited IRAs are exempt under federal income tax laws, the court said they are not really “retirement funds” under Section 522(b)(3)(C) of the Bankruptcy