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What happens to your IRA if you owe child support?

On Behalf of | Jul 6, 2023 | Divorce, Family Law

If you owe child support, it’s possible that funds inside of an individual retirement account (IRA) will be used to satisfy your debt. Unlike 401(k) plans or others covered by the Employee Retirement Income Security Act of 1974, IRAs don’t enjoy total protection from creditor actions. Furthermore, Ohio law can supersede federal government rules regarding IRAs.

Federal regulations

The federal government allows you to protect up to $1,362,800 in IRA savings in a bankruptcy proceeding. Any amount greater than that is subject to garnishment if you owe child support, back taxes or similar priority debts. The full amount of your IRA may be subject to garnishment if you do not file for bankruptcy in an effort to reorganize or forgive existing balances. As a priority debt, child support payments cannot be eliminated in bankruptcy. Instead, doing so may postpone any actions the government might take to settle a balance in arrears.

Federal protections may be moot

States have the option of creating their own laws that take precedence over any rules that the federal government has put in place. For example, SEP and SIMPLE IRA balances receive no special protection under the law in Ohio. If you file for bankruptcy, you may be required to use exemptions provided under Ohio law depending on how long you have lived in the state. In such a scenario, you may have little or no protection from having an IRA garnished to repay child support in accordance with a valid divorce settlement.

In addition to financial penalties and interest, you may also face other consequences for not paying child support on time. These consequences may include jail time, the suspension of professional licenses or other sanctions that will remain in effect until the situation is resolved satisfactorily.