Sometimes it’s said that the bankruptcy code
is filled with landmines. And to a certain extent that’s true and I want to go over one
of those landmines and that’s the IRA exemption. The general rule of thumb is that the IRA’s
are exempt. And almost anything you read will say don’t worry about your IRA because it’s
exempt from the claims of creditors in bankruptcy. But if you read the code though, what the
code says is that if an IRA has received an IRS determination letter then there is a presumption
that it is exempt. And every lawyer knows that there is a lot of danger in that word
presumption because it immediately tells you that there is some ways that it might not
be exempt. And a good example of that is in a recent case involving a Merrill Lynch IRA
and there’s approximately four or 500,000 dollars in this IRA. And the bankruptcy trustee
in that particular case went into a boilerplate language that Merrill Lynch has a customer
sign when they open an IRA. And they found in it language that to the extent that if
that cusutomer were to owe Merrill Lynch money on any other brokerage account for instance
if there was a margin call on a brokerage account that they had in their individual
name, that Merrill Lynch could cover that debt by taking money out of that IRA. The
trustee successfully argued that that was a prohibited transaction and therefore the
IRA should not be exempt. And they won. And they took it to the appellate court and they
won again. So a caution to everyone that has an IRA to
go in and find out if the brokerage firm or the sponsor of the IRA has any type of lien
rights on the account and if they do you need to move that IRA immediately.