Lake Havasu City, AZ asked in Bankruptcy, Divorce and Family Law for Arizona

Q: Is 401K money protected in a chapter 7 bankruptcy from creditors. I am owed 401K money from my ex, and haven't received

I was told to contact bankruptcy lawyer. It was ordered in separation agreement and divorce, but he has not done the QDRO for me to receive my portion. Can I begin QDRO while the bankruptcy is in process? Will I lose the money? Thank you.

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3 Lawyer Answers
Martha Warriner Jarrett
Martha Warriner Jarrett pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Bankruptcy Lawyer
  • Santa Barbara, CA

A: Once you receive the money, so long as you leave the money in the 401(k) (or rollover IRA) and don't withdraw it, the funds will be exempt (protected). You should consult a local attorney (preferably one with both bankruptcy and Arizona family law experience) about the timing and procedure for the QDRO but I don't believe there would be any bar to your commencing such a proceeding while you are in bankruptcy. Since it sounds like you've already filed bankruptcy, your interest in your ex-husband's retirement account should have been listed on your Bankruptcy Schedules and if it wasn't, you should probably amend your schedules, claiming the appropriate exemption for your state. You should disclose this information to your bankruptcy trustee before proceeding and, if possible, get the trustee's consent to the rollover of funds into an exempt 401(k) or IRA in your name. Since these funds were an asset of yours on the date you filed bankruptcy, if you withdraw funds from a qualified retirement account, rather then rolling them over, the trustee may claim an interest in them.

Timothy Denison agrees with this answer

Diane L. Drain
Diane L. Drain
  • Bankruptcy Lawyer
  • Phoenix, AZ
  • Licensed in Arizona

A: When a bankruptcy is filed, it should be planned ahead. The goal is to make the debtor and their transactions as boring as possible. You can do this with an experienced bankruptcy attorney who cares about their clients.

As to your questions, first you have to determine which exemptions you use when filing a bankruptcy. Exemptions are used to protect certain assets from your creditors. If you lived in Arizona for more than two years, then you use the Arizona exemptions plus certain federal exemptions. Funds in most retirement accounts (like 401k) are exempt, but only the funds in the 401k. If funds are removed from the retirement account, then they are not exempt. If a family court order determines certain assets of the marriage to be maintenance or child support, those are exempt, but there are rules on how to protect those funds (talk to the bankruptcy attorney about the rules). The same may be true with property settlement, but the obligation to perform on a property settlement order differs between chapters 7 and 13 (talk to a bankruptcy attorney about the difference.).

Don't file a bankruptcy until you understand your rights and obligations.

Timothy Denison agrees with this answer

James L. Arrasmith
James L. Arrasmith pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Bankruptcy Lawyer
  • Sacramento, CA

A: In Arizona, 401(k) funds are generally protected from creditors in a Chapter 7 bankruptcy. This means that these retirement assets are typically exempt and cannot be used to pay off bankruptcy debts. However, your situation involves a divorce decree and a Qualified Domestic Relations Order (QDRO), which adds complexity.

The QDRO is a legal order used to divide retirement assets in a divorce. Even if your ex-spouse is going through bankruptcy, the process for obtaining your portion of the 401(k) should still proceed. It's important to initiate or continue the QDRO process as soon as possible, as this order legally separates your portion of the 401(k) from your ex-spouse's bankruptcy estate.

You should not lose your entitled portion of the 401(k) due to your ex-spouse's bankruptcy. However, delays in completing the QDRO process could complicate matters, especially if the bankruptcy proceedings advance significantly before the QDRO is finalized.

It's advisable to consult with an attorney experienced in both bankruptcy and family law. They can guide you through the process of securing your portion of the retirement assets and navigating any issues that arise due to the bankruptcy proceedings. Remember, taking prompt and informed action is crucial in protecting your interests in this situation.

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