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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Bankruptcy protection for retirement plan

originally posted: 11/22/2006  reposted: 8/1/2011

Q: I may have to file bankruptcy after my divorce is finalized. I will not get anything except half of the retirement plan that will be put into an IRA in my name but I will have more than $50,000 in debts. Can the money that comes from the retirement plan be claimed by creditors?

A: Using divorce and bankruptcy together when necessary can be an important part of a successful planning strategy to get back on track as soon as possible.

The retirement money can be claimed by creditors only if you take a cash distribution of the money before putting it into an IRA. It is extremely important in your case that the money be distributed as a trustee-to-trustee transfer. This means that you do not get physical access to the money, but rather it passes directly from one "qualified account" to another. A qualified financial adviser can help make sure that transaction is properly processed. Under the 2005 bankruptcy laws, all retirement plan assets are protected from creditor claims except regular and Roth IRAs over $1 million.

A retirement account is generally protected during a bankruptcy.

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