In a unanimous ruling written by Justice Sotomayor, the Supreme Court held that IRA funds inherited by someone other than the deceased individual’s spouse are not protected in bankruptcies. 1 These funds can then be accessed by creditors. This ruling puts a crack in the armor of retirement accounts which, typically, are not open to creditors in bankruptcy proceedings.
The ruling is specific to inherited IRAs and does not address other retirement accounts. The Court’s decision was based on the meaning of retirement funds. It noted that such funds are “properly understood to be sums of money set aside for the day an individual stops working.” However, for an inherited IRA, nothing would prevent or discourage an individual from using the entire balance for other purposes — a “vacation home or sports car” noted Sotomayor.
1 Clark et ux. V. Rameker, Trustee, et al certiorari to the United States Court of Appeals for the Seventh Circuit No. 13-299. Argued March 24, 2014 — Decided June 12, 2014
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