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Madison area woman can't protect inherited IRA from bankruptcy, court rules

MADISON, WI (WTAQ) - You cannot protect an individual retirement account from bankruptcy, if you inherit it from somebody who's not a spouse.

That's what the U.S. Supreme Court ruled Thursday morning, in a unanimous decision against Heidi Heffron-Clark of the Madison area.

She filed for bankruptcy after her and her husband's pizza restaurant closed in Stoughton in 2009. A trustee collected money to pay the couple's debts, which kept growing after the restaurant shut down.

Heffron-Clark inherited a $293,000 IRA after her mother died. Most retirement funds are protected from creditors, and Heffron-Clark contended that her inherited IRA funds were protected as well.

Lower courts disagreed, saying the status of the IRA changed when it was passed down to Heffron-Clark. As a result, she could spend the money at any time and any way she chose, instead of having to wait until she was older to cash in the IRA.

(Story courtesy of Wheeler News Service)