When a layoff and an illness strike a divorced man in close succession during the last third of his career, the financial effects can be devastating. Believe me, as a bankruptcy attorney in Indiana for so many years, I’ve counseled quite a number of gentlemen in situations such as that.

Of course, each situation is at least a little different from others, and so I have no one-size-fits-all advice to offer. There is one topic I discuss with clients, though, that almost always makes me wish they had come to see me earlier in the game. That topic is their retirement plan money.

You see, both tax law and bankruptcy law make some special exceptions to the usual rules when it comes to retirement money, including IRA’s, 401K’s, SEP’s, and 403b’s. On the tax side, for individuals under age 59 1/2, there’s normally a 10% penalty tax for taking money out of a retirement plan. But, if the money is needed to pay tax-deductible medical expenses, that penalty’s waived.

So, what’s the problem? By the time I’m talking to the client in one of my four bankruptcy law offices, often he’s already pulled out substantial sums from retirement accounts to pay medical costs and to try to avoid having those enormous medical bills drive him into bankruptcy.

The irony is, that a Supreme Court decision exempted retirement plan money from the claims of creditors. That preserves IRA assets, for example, for taxpayers who file bankruptcy. If the debtor had come to me earlier, he could have filed bankruptcy and preserved the retirement plan assets.

Attorney April Caudill, writing in the Journal Of Financial Service Professionals, agrees with me that it’s a pity debtors endanger their later financial security by withdrawing money from their IRAs and other retirement plans by to pay expenses.

“Many individuals do to themselves what the bankruptcy court may not be able to force them to do, which is withdraw assets and use them to pay down debts or pay emergency expenses,” says Caudill. The law was passed to help protect middle-class consumers, for whom the IRA or 401K is often their most significant financial asset.

Obviously, the decision whether or not to tap your retirement plan money is only one of many decisions you need to make in implementing a strategy for getting back on firm financial ground. I think it’s highly significant, though, that legislators were very careful to give debtors a chance to preserve their retirement assets for their later years.

Whatever strategy you might pursue to get back on yours feet, obtaining professional advice (in financial planning, tax planning, and bankruptcy) – and obtaining it early in the process, always turns out to be a good idea!