Section of Taxation Publications
  VOL. 56
NO. 3
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Individual Retirement Accounts Incident to Divorce Are Not Excludable from a Debtor's Bankruptcy Estate: Anderson v. Seaver
Wendy Charon


In Anderson v. Seaver, the Bankruptcy Appellate Panel for the Eighth Circuit (“Panel”) held that proceeds of an Individual Retirement Account (IRA) received through a divorce settlement could not be exempted from a debtor’s bankruptcy estate under Minnesota law. The Panel’s holding has two important shortcomings. First, the Panel failed to consider the federal tax status of the IRA in rendering its decision. Second, the Panel incorrectly adopted a bright-line rule emanating from the Eighth Circuit decision in Deretich v. City of St. Francis, without considering the totality of the facts of this case. The Panel’s decision is significant because it yields a result inconsistent with the Code, which permits spouses who obtain IRAs through divorce to maintain the IRA with the same tax-benefited status. The Panel’s application of Eighth Circuit precedent creates uncertainty and a result inconsistent with the language and intent of the Minnesota exemption statute.

Part I of this Note presents the factual background and the arguments set forth by the parties in the Anderson case. Part II introduces the relevant statutory provisions at issue in Anderson. Part III summarizes the decisions of the Bankruptcy Court for the District of Minnesota (“the Bankruptcy Court”) and the Panel. Part IV analyzes the Panel’s decision in light of the Code, Eighth Circuit precedent, and prior Panel decisions. Part V concludes that the Panel erred in not addressing the tax implications of receiving an IRA through a divorce settlement, and in relying on Deretich without regard to the particular facts of the Anderson case, thereby departing from results reached by other courts on the treatment of IRAs incident to a divorce settlement.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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