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Divorce and Retirement Accounts Critical Update for Divorcees and Family Law Attorneys

| October 31, 2018
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Your Retirement Accounts Awarded in a Divorce May be in Jeopardy

A most interesting Minnesota appeals case recently came to my attention that has far reaching implications for divorcing individuals awarded all or part of their ex-spouse's retirement accounts.  This specifically includes 401k's and IRA's awarded to the non-participating spouse via a Qualified Domestic Relations Order (QDRO) or in the case of IRA accounts via the divorce decree.

Below are the highlights of this case along with links to the case mentioned and an applicable 2014 U.S. Supreme Court case.

  • Brian Lebarkken, appellant was awarded a portion of his ex-wife's 401k and an interest in certain IRA accounts.
  • Lerbakken did not take any action to obtain title or possession of these accounts.
  • Lerbakken filed a Chapter 7 bankruptcy petition claiming the retirement account values awarded to him in the property settlement as exempt from creditors claims.
  • Lerbakken's law firm Sieloff and Associates, P.A. represented Lerbakken in his divorce proceeding in Lake County, Minnesota.
  • Sieloff who was listed as a creditor for its upaid fees objected to Lebarkken's exemption claim.
  • The bankruptcy court disallowed the exemptions based on a U.S. Supreme Court case Clark v. Raemeker.  Click here for the Clark v. Raemeker case.
  • The bankruptcy courts decision was appealed. 
  • On appeal the bankruptcy court's order was upheld.  Click here for the the appeals ruling:  U.S. Bankruptcy Court District of Minnesota.

What does this mean for divorcees awarded these types of retirement assets as part of a property settlement?  A couple of key takeaways:

  1. Awarded retirement assets subsequent to a divorce property settlement will not provide the creditor protection afforded by an individuals own retirement accounts.
  2. In my opinion it would be a best practice for divorcees to not commingle awarded retirement account assets with their own retirement accounts.  Commingling accounts could compromise the entire account value including their own retirement dollars possibly subjecting all dollars in the account to creditors claims. 

If you or someone you know has been awarded all or part of a 401k or an IRA in a divorce settlement and want to discuss your options on how to best put those assets to work for you while protecting your accounts from creditors click here to schedule your  Free 45 minute Introductory Lifeline Planning Meeting.

In addition to my retirement financial planning practice I often work with divorcing individuals, couples, and their attorneys.  I specialize and am called upon for mediation and collaborative divorce as a financial neutral.  I routinely consult with individuals before, during and after divorce and am frequently hired by attorneys on behalf of their clients. 

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