Legal Question in Bankruptcy in California

IRA savings are generally exempt, meaning they're usually protected from enforcement of judgments, and in bankruptcy, they're protected from liquidation.

Disclaimer: the above as well as any information found on our Web site is not legal advice and should not be relied upon. It does not create an attorney-client relationship. Unilateral communications may be misconstrued as they do not address all facets, nuances, and particulars, or all means of addressing a situation. This is strictly my opinion provided for general informational purposes and it pertains to California law. We do not review and are not responsible for the content of other attorneys� answers even when they answer the same questions. We recommend you seek legal and other professional counsel before acting or refraining from action in relation to bankruptcy. It's worth the cost.

In California all community property becomes part of the bankruptcy estate whether or not the debtor files a joint petition. Property that is part of the bankruptcy estate and not exempt is transferred to the trustee for the benefit of creditors.

Your girlfriend should leave the money in the IRA, which is likely exempt from becoming part of the estate used for the creditors. Pulling it out is more risky because that amount of cash would generally not be exempt. The trustee will be examining all transfers made to an insider up to one year before the petition was filed.

NOTE: The mere posting of information is not legal advice and does not create an attorney-client relationship. The reply posted above is for general informational purposes only. There are many different details, nuances and local customs that can impact the facts and the law. You are advised to seek competent legal counsel before taking any action relating to the law or bankruptcy.

If the money is properly in the IRA then it should be exempt from the reach of the bankruptcy court. My concern would be is the IRA protected from the husband? Is there a temporary family law order in place which prevents him from taking all the money out of the IRA before the divorce decree is final? Yes, if he took all the money out the family court could order him to put the money back or reimburse her for the funds that should have been hers- but if he is insolvent and spent the money she�s just going to be left with a judgment she can't enforce.

I would not advise the early withdrawal except in the most dire of financial emergencies. IRA's are excellent vehicles to protect funds, the minute the money is withdrawn from the IRA there is no way to protect it from creditors, the bankruptcy court etc.

Dawn R. VanHorn

Attorney & Counselor at Law

www.VanHornLegal.com

(714) 396-4152

(714) 784-2524 facsimile

Consumer Protection Corner- www.vanhornlegal.wordpress.com

The foregoing has been written by Dawn R. VanHorn, Attorney & Counselor at Law. If the designated recipient(s) of this communication have not fully executed a retainer agreement engaging Dawn R. VanHorn and/or VanHorn Legal relating to the subject(s) of this electronic message nothing herein constitutes nor is intended to be legal advice and as a result should not be relied upon as such.