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Can I Protect My 401(k) with a Prenup?

7 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

Yes, you can, and the best way to protect your retirement assets in a divorce is to have a prenuptial agreement. A properly drafted prenup can keep your 401(k) fund safe and secure your financial wellbeing. Here’s how to find a lawyer to help you with your prenup at an affordable price.

Most people know that in the event of a divorce, they will need to divide their assets. However, when it comes to assets, most couples have something tangible in mind such as real estate, vehicles, bank accounts, and more. Retirement funds, on the other hand, often get left out when dealing with finances. As a result, spouses may be unaware that their retirement accounts will be up for division when they get divorced.

This is exactly what will happen. If you have started a retirement fund after getting married or have made any retirement fund contributions during the marriage, a portion of your retirement benefits will probably go to your spouse after a divorce. 

So, what can you do to protect your 401(k) assets in a divorce?

Talk to an unbundled estate planning lawyer in your area today about your options for protecting your retirement assets. Unbundled Legal Help can connect you today with an estate planning lawyer in your area.

Will My 401(k) Be Divided in a Divorce?

A 401(k) is a retirement savings plan in which employees contribute a part of their income to a retirement fund, and employers match their contributions. Many companies offering a 401(k) plan will enroll them in the program automatically. How much you can save depends on a number of factors: your retirement plan, your salary, the company you work for, tax laws, and more. But whatever the amount, having a retirement fund is an important contribution to your future and a substantial investment into your financial security.

So, what will happen to your 401(k) if you get divorced? It depends on whether your retirement fund is considered marital or community property. In most states, if you acquire retirement benefits during a marriage, these are considered marital assets—assets owned in equal parts by you and your spouse. This means that when you get divorced, these assets will be up for division. In most cases, this means your spouse will receive 50% of your savings. 

One of the best ways to protect your 401(k) assets is to sign a prenuptial or a postnuptial agreement. Both these agreements can redefine what property is considered a marital asset and what property is viewed as a community asset. As a result, you will have full control of how your retirement benefits are managed and what happens to them if you ever get divorced.

How to Protect a 401(k) Fund with a Prenup?

A prenuptial agreement is a written document that protects your assets in case of a divorce. A prenup can establish what will be considered as separate property and what will be considered as marital or community property. 

As you already know, separate property will not be divided during the divorce while marital property will be up for division. You can use your prenup to specify that you want your 401(k) assets to be considered as your separate property if you ever get divorced. You can also state that any contributions you make to retirement accounts during the marriage should be considered separate property as well.

If you are already married and don’t have a prenuptial agreement, you can draft a postnuptial agreement instead. A postnuptial agreement works in pretty much the same way as a prenuptial agreement. The only difference is that you sign it after you’re already married. You can add a clause to your postnuptial agreement that specifies how your retirement assets will be treated in case of a divorce. 

Without a prenuptial or postnuptial agreement in place, a portion of your retirement assets as well as retirement fund contributions will be divided after a divorce. Note that this will also include any income that was produced by the retirement fund—for instance, invested income.

The portion of the retirement plan you owned before getting married will be viewed as separate property if you have clear evidence regarding the timeline for when these assets were acquired. 

How Much Does Drafting a Prenup Cost?

If you want to draft a prenuptial or a postnuptial agreement, both you and your spouse will need separate legal representation. Each of you will need a lawyer to make sure that the drafted agreement is fair to both parties and written in accordance with state laws. A lawyer will also help you understand real-life consequences of the provisions you include in your prenup.

In most states a prenuptial or postnuptial agreement is only deemed valid if it is looked over by a lawyer, and if both parties have separate legal counsel to protect their interest.

Drafting a prenuptial agreement includes several services. This is why most lawyers will charge you a set fee for a “prenup package.” Depending on how much work is involved, you can expect to pay from $1,500 to $5,000. However, if your case is particularly complicated (for instance, you and your spouse have substantial assets to manage, or you disagree on a number of prenup clauses), you may need to pay even more. Your lawyer may charge you $150 to $300 for an additional hour of work. When working with a lawyer, make sure you are fully aware what services they include in the set price and which services will be billed separately.

Drafting a postnuptial agreement is mostly the same as drafting a prenup. In fact, postnuptial agreements may “add” clauses to a prenuptial agreement if the financial situation of one or both spouses has changed—for instance, if one spouse receives an inheritance or starts a retirement fund. It’s also a way to sort out your finances after you are married if you don’t have a prenup in place. Just as with a prenup, both you and your spouse will require full legal representation to draft a postnuptial agreement. 

Legal services for drafting a prenuptial agreement aren’t cheap. But there is a way to save money on legal costs and still get the services you need. 

How to Save Money on Prenup Legal Costs?

As you can see, the costs of drafting a prenuptial (or postnuptial) agreement can be significant. On the other hand, drafting a prenup can help you avoid substantial financial losses in the future and protect your assets, including retirement assets, for years to come. In short, a prenuptial agreement is an important investment in your future: Don’t overlook it.

Fortunately, there are ways to bring down the legal costs associated with drafting a prenup. One way to do this is by using unbundled legal services. With unbundled legal services offered by Unbundled Legal Help, you may hire a lawyer for a specific task. For instance, you can have them look over your prenup draft and make sure it protects your interests and doesn’t contradict state laws. In this case, you will only pay for this one service provided instead of a whole set of services, some of which you might not need. 

Unbundled legal services may not always be the best solution. In some cases, you will need full legal representation to make sure your prenuptial agreement is properly drafted. For instance, if you or your spouse have a lot of assets that need to be managed in a prenuptial agreement, you may need to work with a lawyer full time. Or, if there are disagreements between you and your partner that require negotiation and conflict resolution, you will need full legal representation to sort these out.

If you need full legal representation, you can still use unbundled legal services. Our network includes many individual lawyers and smaller legal firms, who may be able to offer you more affordable prenup packages and full representation. 

We can connect you with one of the estate planning attorneys in our network today for an evaluation of your case and related legal costs.

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