How do I keep pre-marital 401k separate?

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yosemite_mountain
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How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

I’m getting married in a couple of months and I would like to keep my pre-marital 401k separate.

-401k at Fidelity: 300k (mostly bonds)
-Roth IRA at Vanguard: 200k (All stocks)
-Taxable at Vanguard: 700k (All stocks)
Total: 1.2m

My partner is not coming into the marriage with any assets as they have only been working for a few years.
My partner makes $370k, I make $250k. I except my income to increase in the future.

My partner will be investing 50% of their money overseas in their country of origin (Not because they want to hide assets, but because they moved to the US as an adult, so they are more familiar with investments in their country of origin).

If we got a divorce, there is no way to track their investments overseas; so the community property to be split in half would be coming from mostly my investments.


The Roth IRA and taxable at Vanguard are easier to keep separate. (I will “freeze" the Vanguard account before marriage and never contribute to it again post marriage)…

How do I keep the pre-marital 401k separate? My 401k plan does not allow me to transfer funds outside the 401k plan while still employed.


I spoke with a family law attorney in California who said:
"In California, property owned separately before marriage and any appreciation/dividends form that property remain separate if you don't commingle it, as in, separate brokerage”...

State: California (community property state)

I hope and pray I never go through a divorce but I understand life happens.

Question:
How do I keep my pre-marital 401k account as separate property? I would like the dividends+capital gains earned on my separate property 401k during the marriage to remain separate property. For instance:


-The value of my 401k on the date of marriage is A.
-During the marriage, the "dividends +capital gains" on A is A_gains.
-The value of my 401k on the date of divorce is B.

I would want 401k community property on the date of divorce to be = B - (A+A_gains).


Strategy 1: Before marriage, take a loan from my 401k; re-invest the loan in the Vanguard taxable account.

AND

Strategy 2: Cash out 401k before marriage and pay the 10% penalty, then re-invest the money in the pre-marital separate Vanguard taxable account.
This way the balance on my 401k on the date of marriage is 0.
Last edited by yosemite_mountain on Sun May 12, 2024 4:51 pm, edited 22 times in total.
Billmorelli
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Re: How do I keep pre-marital 401k separate?

Post by Billmorelli »

How about placing all the money in a fund that you don’t contribute to any longer and draw up a prenup stating it’s a premarital asset?

Just throwing it out there.
BirdFood
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Re: How do I keep pre-marital 401k separate?

Post by BirdFood »

Does California not respect a prenup that addresses this?

(Or are you saying that’s already the plan, and you’re looking for a set of accounting rules to agree on?)
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Re: How do I keep pre-marital 401k separate?

Post by climber2020 »

One idea: put 100% of your premarital 401k into a single fund. Either target date, life strategy, a balanced fund, or even a total stock fund if you want to be aggressive. Something you’re comfortable holding forever.

After marriage, contribute to completely different funds and don’t add a dollar to the previous fund. It will be easy to track what came before and what came after.

Also, keep copies of every statement starting from the month/quarter before you get married so you can prove you never added any new contributions to the premarital fund. Many companies have limits on how far back you can access statements either online or by mail.

Or get a simple prenup with “mine”, “yours”, and “ours”. Each walks away with anything in their name only, and joint property gets split 50:50.
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CAsage
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Re: How do I keep pre-marital 401k separate?

Post by CAsage »

Consider a pre-nuptial agreement, which would clearly define how many shares you own in that 401K. It won't be perfect (ideally you would move it to a separate account at a different brokerage) but... it's something. At best this will show (should The Worst Occur) what you had going in. I would also note that for most young people with a lifetime of shared earnings ahead of them, this might not be important. Later marriage or inheritance has more pressing need for a prenup.
Late edit: I really like the prior post about putting it all in one fund that you never, never, never touch or contribute to. At worst, you could convert all of XXX to YYY and show that trace. It's all about tracing. Annual statements are probably sufficient.... A Target Date fund or a major stock index would be good. Then post marital, some other thing.
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Re: How do I keep pre-marital 401k separate?

Post by LadyGeek »

I removed an off-topic post conjecturing on a relationship issue. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
Please stay focused on the financial aspects.
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Re: How do I keep pre-marital 401k separate?

Post by 123 »

Resign your current position.
Withdraw existing 401K and transfer to desired IRA.
Find new employment if necessary.

Establishing a discreet separate IRA account could avoid the conflicts that sometimes arise in the development of a pre-marital agreement.
Last edited by 123 on Wed May 01, 2024 8:42 pm, edited 1 time in total.
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yosemite_mountain
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

climber2020 wrote: Wed May 01, 2024 7:57 pm
Also, keep copies of every statement starting from the month/quarter before you get married so you can prove you never added any new contributions to the premarital fund. Many companies have limits on how far back you can access statements either online or by mail.
Good to know! I had no idea some companies have limits on how far back you can access statements.
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Re: How do I keep pre-marital 401k separate?

Post by whodidntante »

Ask your attorney.
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Re: How do I keep pre-marital 401k separate?

Post by 123 »

yosemite_mountain wrote: Wed May 01, 2024 8:40 pm
climber2020 wrote: Wed May 01, 2024 7:57 pm
Also, keep copies of every statement starting from the month/quarter before you get married so you can prove you never added any new contributions to the premarital fund. Many companies have limits on how far back you can access statements either online or by mail.
Good to know! I had no idea some companies have limits on how far back you can access statements.
If your company is acquired often the 401K plan gets changed and sometimes employers change the 401K custodian for various reasons. So you cannot rely on the availability of any records other than those you maintain yourself.
The closest helping hand is at the end of your own arm.
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

whodidntante wrote: Wed May 01, 2024 8:43 pm Ask your attorney.
I did... the attorney was not very helpful ;-(
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Re: How do I keep pre-marital 401k separate?

Post by whodidntante »

yosemite_mountain wrote: Wed May 01, 2024 8:56 pm
whodidntante wrote: Wed May 01, 2024 8:43 pm Ask your attorney.
I did... the attorney was not very helpful ;-(
Ask your new attorney 😆
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Re: How do I keep pre-marital 401k separate?

Post by plsgoobs »

My wife and I have a prenup in Massachusetts. Our lawyers had us document our holdings at the time of signing. They said if we do divorce they have ways to do the calculations to determine how much each of us would have with our premarital contributions and growth. Then we'd split the remainder of the contributions+growth 50/50.
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Re: How do I keep pre-marital 401k separate?

Post by BirdFood »

yosemite_mountain wrote: Wed May 01, 2024 8:56 pm
whodidntante wrote: Wed May 01, 2024 8:43 pm Ask your attorney.
I did... the attorney was not very helpful ;-(
Ask an accountant?
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Re: How do I keep pre-marital 401k separate?

Post by ClaycordJCA »

Was the attorney you consulted certified by the State Bar of California as a Family law specialist? If not, I recommend that the attorney you consult for a second opinion be certified. You might also want to check the Super Lawyers website for recommended divorce or family law attorneys in your area - the lawyers I know generally think highly of the Super Lawyers ratings.
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Re: How do I keep pre-marital 401k separate?

Post by just frank »

I know that in many states premarital retirement assets are considered separate automatically, and forever. They were in my divorce.

Earnings on those accounts are martial property. And all of this is independent of whose name is on the account, and whether they are mixed or whatnot.

So in my state, PA, the OP question is meaningless. Is it really different in CA?

In PA, this means that if most of two people's wealth is in retirement assets, a short term marriage does not lead to a significant redistribution of assets during divorce. And this obviates much need for prenups and related concerns. IMO for a long term marriage, the distribution should move towards 50%, which is what happens naturally in the PA 'system'.
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Re: How do I keep pre-marital 401k separate?

Post by Workqa »

I don't know if this is allowed with your employer but many allow it.

Ask HR that you would like to switch to a new financial service provider for your 401k starting month X, 202x, and that you would like to leave existing 401k assets with the current provider.

This way, nothing is mingled.
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Re: How do I keep pre-marital 401k separate?

Post by gavinsiu »

You should talk to a lawyer. There are a lot of pieces According to this https://www.investopedia.com/divorce-and-401-k-5441868,
" Assets held in a 401(k) or other qualified retirement plan are typically divided through a qualified domestic relations order (QDRO), which the Internal Revenue Service (IRS) defines as “a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.”1

In a divorce, the state where you live will come into play, especially if you leave it to a judge to decide how to split up your assets. In a community property state, the court will split your marital assets 50/50. In the case of a 401(k), the money that you contributed to your account before you were married isn’t considered a marital asset. In an equitable distribution state, the court will divide up your assets in what it views as an equitable manner, which may or may not be 50/50.2 "
Your employer's plan may not allow you to roll your funds elsewhere while you are still working for them. If you transfer your money to rollover IRA, you won't be able to do backdoor roth, and IRA do not have the same degree of protection as 401K against creditors in CA.
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Re: How do I keep pre-marital 401k separate?

Post by toddthebod »

just frank wrote: Thu May 02, 2024 5:44 am I know that in many states premarital retirement assets are considered separate automatically, and forever. They were in my divorce.

Earnings on those accounts are martial property. And all of this is independent of whose name is on the account, and whether they are mixed or whatnot.

So in my state, PA, the OP question is meaningless. Is it really different in CA?

In PA, this means that if most of two people's wealth is in retirement assets, a short term marriage does not lead to a significant redistribution of assets during divorce. And this obviates much need for prenups and related concerns. IMO for a long term marriage, the distribution should move towards 50%, which is what happens naturally in the PA 'system'.
In California everything contributed to 401(k)s after marriage (or even pension credits earned) is community property.
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Re: How do I keep pre-marital 401k separate?

Post by just frank »

toddthebod wrote: Thu May 02, 2024 8:56 am
just frank wrote: Thu May 02, 2024 5:44 am I know that in many states premarital retirement assets are considered separate automatically, and forever. They were in my divorce.

Earnings on those accounts are martial property. And all of this is independent of whose name is on the account, and whether they are mixed or whatnot.

So in my state, PA, the OP question is meaningless. Is it really different in CA?

In PA, this means that if most of two people's wealth is in retirement assets, a short term marriage does not lead to a significant redistribution of assets during divorce. And this obviates much need for prenups and related concerns. IMO for a long term marriage, the distribution should move towards 50%, which is what happens naturally in the PA 'system'.
In California everything contributed to 401(k)s after marriage (or even pension credits earned) is community property.
Same in PA, but the balance of retirement accounts on the date of marriage is separate from community property, for the duration of the marriage.

I was married 20 years, and we deducted the starting balance of our retirement accounts (from 20 years earlier) when we did the calculation.

In other words:
yosemite_mountain wrote: Wed May 01, 2024 7:33 pm Question:
How do I keep my pre-marital 401k account as separate property. Ideas:
-Take a snapshot of the 401k near the wedding of your account shares to show "before"?
YES.
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Re: How do I keep pre-marital 401k separate?

Post by toddthebod »

just frank wrote: Thu May 02, 2024 12:57 pm
toddthebod wrote: Thu May 02, 2024 8:56 am
just frank wrote: Thu May 02, 2024 5:44 am I know that in many states premarital retirement assets are considered separate automatically, and forever. They were in my divorce.

Earnings on those accounts are martial property. And all of this is independent of whose name is on the account, and whether they are mixed or whatnot.

So in my state, PA, the OP question is meaningless. Is it really different in CA?

In PA, this means that if most of two people's wealth is in retirement assets, a short term marriage does not lead to a significant redistribution of assets during divorce. And this obviates much need for prenups and related concerns. IMO for a long term marriage, the distribution should move towards 50%, which is what happens naturally in the PA 'system'.
In California everything contributed to 401(k)s after marriage (or even pension credits earned) is community property.
Same in PA, but the balance of retirement accounts on the date of marriage is separate from community property, for the duration of the marriage.

I was married 20 years, and we deducted the starting balance of our retirement accounts (from 20 years earlier) when we did the calculation.

In other words:
yosemite_mountain wrote: Wed May 01, 2024 7:33 pm Question:
How do I keep my pre-marital 401k account as separate property. Ideas:
-Take a snapshot of the 401k near the wedding of your account shares to show "before"?
YES.
I don't think it's at all that straightforward if you would like the earnings associated with your separate property to remain separate property in a commingled account.
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

toddthebod wrote: Thu May 02, 2024 1:18 pm
I don't think it's at all that straightforward if you would like the earnings associated with your separate property to remain separate property in a commingled account.
Right..... commingling accounts makes it community property....

I spoke with a family law attorney in CA who said:
"Property owned separately before marriage and any appreciation/dividends form that property remain separate if you don't commingle it, as in, separate brokerage”
Last edited by yosemite_mountain on Thu May 02, 2024 1:33 pm, edited 1 time in total.
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

climber2020 wrote: Wed May 01, 2024 7:57 pm One idea: put 100% of your premarital 401k into a single fund. Either target date, life strategy, a balanced fund, or even a total stock fund if you want to be aggressive. Something you’re comfortable holding forever.

After marriage, contribute to completely different funds and don’t add a dollar to the previous fund. It will be easy to track what came before and what came after.
Interesting idea....
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Re: How do I keep pre-marital 401k separate?

Post by LilyFleur »

Keep good physical and digital records of any assets you bring into the marriage: 401k, car, real estate, etc.

It's a snapshot in time.

I've seen the California courts award pre-marital assets back to the appropriate party in the divorce. For example, someone provided a $100,000 downpayment on a house bought during the marriage. The downpayment came from an inheritance that they had inherited before the marriage.

The house was sold, and the proceeds were divided equally among the two people, except for the $100,000 downpayment, which was awarded to the person who had provided it from pre-marital assets. No appreciation or earnings on the $100,000 investment were awarded.

Judges, and attorneys, do not have a deep understanding of finance.

Good records are essential.

My own divorce attorney, (who was quite good), said sometimes prenups hold up in court in a divorce but that it's not a given.

I can't stress this enough: keep good physical and digital records of all of your separate property, as of the week before you get married.
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

LilyFleur wrote: Thu May 02, 2024 2:04 pm
Judges, and attorneys, do not have a deep understanding of finance.
This was my impression as well, the attorneys I spoke to did not have a deep understanding of finances... such as capital gains, dividends on stocks acquired before the marriage... which is why I also posted on this forum
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

LilyFleur wrote: Thu May 02, 2024 2:04 pm
I can't stress this enough: keep good physical and digital records of all of your separate property, as of the week before you get married.
Thanks... And even after marriage I should download statements of the separate property to show no contributions are made to the separate property after marriage.
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Re: How do I keep pre-marital 401k separate?

Post by toddthebod »

yosemite_mountain wrote: Thu May 02, 2024 2:34 pm
LilyFleur wrote: Thu May 02, 2024 2:04 pm
I can't stress this enough: keep good physical and digital records of all of your separate property, as of the week before you get married.
Thanks... And even after marriage I should download statements of the separate property to show no contributions are made to the separate property after marriage.
I am not as confident in the "separate fund" theory as others, especially if you invest your separate property in a more aggressive allocation. If I were divorcing you, I would argue that we should calculate earnings attributable to your separate property in the same manner as used for excess contributions and recharacterizations of IRAs.

Therefore, I suggest if you are really serious about this, you download monthly statements, such that you can later create a spreadsheet separating out growth on separate property, growth in community property, and new contributions every month.
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Re: How do I keep pre-marital 401k separate?

Post by CAsage »

If one chose to invest the current premarital separate property in one fund, say a Target Date fund, are dividends/capital gains automatically reinvested in that same fund? If so, then one could trace any growth clearly. Pity you can't make a partial withdrawal (rollover) to a separate IRA. But it may not be worth quitting your job for! Note that if you ever do change employers, that would be the time to separate that fund.
You may not be able to make a perfect solution, but you can make a reasonable and defensible documentation trail. Pick a separate fund, don't contribute to it, save all the statements showing reinvestments (I really hope annually is enough...) and hope for the best.
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Re: How do I keep pre-marital 401k separate?

Post by exodusNH »

yosemite_mountain wrote: Thu May 02, 2024 2:30 pm
LilyFleur wrote: Thu May 02, 2024 2:04 pm
Judges, and attorneys, do not have a deep understanding of finance.
This was my impression as well, the attorneys I spoke to did not have a deep understanding of finances... such as capital gains, dividends on stocks acquired before the marriage... which is why I also posted on this forum
Make sure your partner also talks to a separate attorney that they pay out of their own money. Otherwise, should you divorce, the prenup might not have been considered fair.
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Re: How do I keep pre-marital 401k separate?

Post by nonnie »

My experience in California with three divorces (mine and spouse) is that retirement accounts are not that difficult to split during a divorce. The value of your 401k on the date of marriage is separate property ( A). The value of your 401k on the date of divorce - (B). B minus A is community property to be split 50/50. Maintain good records for A.

If you wish to make it more difficult and capture the income portion as separate property based on the value of the account before marriage, then you will have to proceed with something like you have been proposing. Is your account large enough to warrant that?

A previous poster mentioned separate inherited property contributed as a down payment on a joint house. (There is a California statue, that covers this , can't remember the code, but it isn't widely used by many divorce attorneys). Contributing separate funds like this is considered transmutation and it is necessary to maintain scrupulous records in order to "claw back" these funds. In the case I am familiar with The person used inherited funds to fund substantial upgrades to a joint house. They were able to claw back approximately 2/3 of the funds as record keeping was not stellar.

I'm also familiar with a case where person A owned the home, person B married and moved in and started paying half of the mortgage. Upon divorce, the value of the home upon marriage was subtracted from the value, including all appreciation, at divorce.

Please do find an attorney who explains this to your satisfaction. Best wishes on your upcoming marriage, are you going co -mingle everything or each maintain separate accounts and establish a joint account for joint expenses. I am a huge proponent of this although it is not a popular Boglehead strategy.
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

nonnie wrote: Thu May 02, 2024 4:58 pm Please do find an attorney who explains this to your satisfaction.
How do I find a good family attorney? To find my previous attorney who was not helpful, I used avvo.com. She charged me $500 an hour.
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Re: How do I keep pre-marital 401k separate?

Post by cisvp »

So are you not getting a prenup? Without one, anything you do will not be airtight against a good divorce lawyer
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Re: How do I keep pre-marital 401k separate?

Post by BirdFood »

yosemite_mountain wrote: Thu May 02, 2024 7:00 pm
nonnie wrote: Thu May 02, 2024 4:58 pm Please do find an attorney who explains this to your satisfaction.
How do I find a good family attorney? To find my previous attorney who was not helpful, I used avvo.com. She charged me $500 an hour.
Do you have any friends, or parents of friends, that you can ask for recommendations? (I say parents of friends because I'm thinking the older a person is, the more likely they are to have needed a lawyer--for wills, trusts, real estate, prenup, whatever.)
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Re: How do I keep pre-marital 401k separate?

Post by Dpmbball »

Billmorelli wrote: Wed May 01, 2024 7:43 pm How about placing all the money in a fund that you don’t contribute to any longer and draw up a prenup stating it’s a premarital asset?

Just throwing it out there.
I second prenup is needed…what vehicle you put the asset in is less important for your goal… Also if you move it or make adjustments (without contributing) what happens. Pre nup gets rid or helps get rid of gray area
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Re: How do I keep pre-marital 401k separate?

Post by Rocky Mtn Man »

Dpmbball wrote: Thu May 02, 2024 11:20 pm

I second prenup is needed…what vehicle you put the asset in is less important for your goal… Also if you move it or make adjustments (without contributing) what happens. Pre nup gets rid or helps get rid of gray area
Agree. It seem the OP is trying to get a prenup protection without getting a prenup, even as far as talking to a family law attorney. A hard conversation with the future spouse is in order.
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Re: How do I keep pre-marital 401k separate?

Post by Dpmbball »

Rocky Mtn Man wrote: Fri May 03, 2024 4:35 am
Dpmbball wrote: Thu May 02, 2024 11:20 pm

I second prenup is needed…what vehicle you put the asset in is less important for your goal… Also if you move it or make adjustments (without contributing) what happens. Pre nup gets rid or helps get rid of gray area
Agree. It seem the OP is trying to get a prenup protection without getting a prenup, even as far as talking to a family law attorney. A hard conversation with the future spouse is in order.
He just wants to avoid the I don’t really trust you or how our life will turn out convo…People don’t always understand reality but it is what it is…hopefully she doesn’t freak out or hold a grudge but BH isn’t the place for this part of the convo
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Re: How do I keep pre-marital 401k separate?

Post by CAsage »

Even with a prenup, things aren't always clear cut and controllable. This is a "budget" prenup, where one quietly documents their starting assets, with a plan to manage them carefully, and under Ca law, fairly defensible. I've read other posts from other states that muddy the waters with how taxes are paid or equitable distribution states where all assets are fair game, but not CA. The OP would likely do as well with this "free" plan without the stress and expense of a prenup (we were quoted $15K for a simple prenup with 2 lawyers). Most horror stories I've read are about people who eff' it up later - putting money into a house without documenting the separate property share, paying off the spouse's loans, supporting a SAH spouse, muddling accounts and mixing funds. OP already recognizes that all earnings going forward are Community, so .... let's all hope for a long, happy marriage without any need to ever bring this up. And I know more than one couple with a "religious" or social wedding who never took out a license and are not legally married, just to avoid this. It won't prevent alimony or effect on child support, so ... there's a lot here you can't control. Inheritance falls under the same umbrella, and few people get post-nuptial agreements to manage those, they just carefully keep the asset separate (if desired).
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Re: How do I keep pre-marital 401k separate?

Post by wander »

May be to cash it out, pay the penalty and pay off your house. Seriously, if I had to worry about my money, I would not get married.
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Re: How do I keep pre-marital 401k separate?

Post by nonnie »

yosemite_mountain wrote: Thu May 02, 2024 7:00 pm
nonnie wrote: Thu May 02, 2024 4:58 pm Please do find an attorney who explains this to your satisfaction.
How do I find a good family attorney? To find my previous attorney who was not helpful, I used avvo.com. She charged me $500 an hour.
I sent you a PM with a recommendation.
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Re: How do I keep pre-marital 401k separate?

Post by illumination »

Definitely get a prenup, that's my default advice for anything regarding finances and divorce implications if you have concerns. Just because you have fire insurance on your house doesn't mean you plan to have your house burn down.

But on this specific question, I had a friend that went through an ugly divorce just had this exact scenario (without a prenup). It came down to what he could show was "his" before the marriage in the retirement plan. So I would say make sure you keep good records and are able to document dates. In this person's case, the plan had so many changes over the years and he could never nail anything down. His divorce was so contentious that even though the other party knew that most of the retirement plan was premartial, it basically ended up being split down the middle because it was just going to be a knock down drag out to get anything close to accurate. Had they simply kept good records (like a snapshot of the account the day before they were married) it would have been quite a bit of savings. HUGE setback for retirement goals.
JayDee37
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Re: How do I keep pre-marital 401k separate?

Post by JayDee37 »

yosemite_mountain wrote: Thu May 02, 2024 7:00 pm
nonnie wrote: Thu May 02, 2024 4:58 pm Please do find an attorney who explains this to your satisfaction.
How do I find a good family attorney? To find my previous attorney who was not helpful, I used avvo.com. She charged me $500 an hour.
Where in CA are you located, and would you be happy with teleconsultation or do you prefer to meet in person?
Tell me, what is it you plan to do with your one wild and precious life? | ~Mary Oliver
investuntilimrich
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Re: How do I keep pre-marital 401k separate?

Post by investuntilimrich »

I think there is a much easier way to keep the assets separate: Do not get married. I don't really understand the burning desire so many people have to get the government involved in their lives should someone decide to part ways. If you're worried about medical decisions, you can have papers drawn up for that. If you're worried about the loss of a loved one, there's a will. I'm struggling to see what benefit marriage offers other than some romatic notion of olden times when people had to read by candle light and were shunned if they had premarital relations. Look how many people in this thread has wasted resources on divorce attorneys. If there's one thing that could have saved boogleheads money, it must surely be avoiding marriage.
stocknoob4111
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Re: How do I keep pre-marital 401k separate?

Post by stocknoob4111 »

The single fund idea is great, the only issue is that if that fund changes (which happens sometimes in 401ks) and they exchange it to a new fund then is that considered a "sale" and subsequent co-mingling and purchase in the community property context? And usually the discrete asset class choices in 401ks tend to be very limited so having a separate fund would mean investing in a totally different asset class which may throw your asset allocation off to something you possibly don't really want.
oldfatguy
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Re: How do I keep pre-marital 401k separate?

Post by oldfatguy »

investuntilimrich wrote: Mon May 06, 2024 6:22 am I think there is a much easier way to keep the assets separate: Do not get married. I don't really understand the burning desire so many people have to get the government involved in their lives should someone decide to part ways. If you're worried about medical decisions, you can have papers drawn up for that. If you're worried about the loss of a loved one, there's a will. I'm struggling to see what benefit marriage offers other than some romatic notion of olden times when people had to read by candle light and were shunned if they had premarital relations. Look how many people in this thread has wasted resources on divorce attorneys. If there's one thing that could have saved boogleheads money, it must surely be avoiding marriage.
My partner and I were unmarried for many years, and it was beneficial to us during that time. Now we are married because it is beneficial to us. Sometimes there are very practical benefits like health insurance and social security.
avalpert1
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Re: How do I keep pre-marital 401k separate?

Post by avalpert1 »

investuntilimrich wrote: Mon May 06, 2024 6:22 am I don't really understand the burning desire so many people have to get the government involved in their lives should someone decide to part ways.
I assume you feel the same way about any contract between parties (including employment) since they all get the government involved in their lives when they part ways...

Intertwining two lives is quite complex, whether contractual shortcuts are used via marriage or you try to cover all your bases individually with separate contracts, trying to untwine those two lives will be just as complex and potentially costly.

So if you think the best answer for you is to just never intertwine with someone (maybe beyond casual, temporary interactions) great for you but that doesn't seem to align with the preferences of the vast majority of mankind over recorded history so understand you are swimming upstream there.
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yosemite_mountain
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Re: How do I keep pre-marital 401k separate?

Post by yosemite_mountain »

CAsage wrote: Fri May 03, 2024 5:39 pm OP already recognizes that all earnings going forward are Community,
I am not ok with all earnings going forward being community property; I would like the earnings of my separate property to remain separate property.
For instance:

The value of my stocks on the date of marriage is A.
During the marriage, the gain on A is A_gains.
The value of my stocks on the date of divorce is B.

I would want community property on the date of divorce to be = B - (A+A_gains).
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LilyFleur
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Re: How do I keep pre-marital 401k separate?

Post by LilyFleur »

yosemite_mountain wrote: Tue May 07, 2024 7:31 pm
CAsage wrote: Fri May 03, 2024 5:39 pm OP already recognizes that all earnings going forward are Community,
I am not ok with all earnings going forward being community property; I would like the earnings of my separate property to remain separate property.
For instance:

The value of my stocks on the date of marriage is A.
During the marriage, the gain on A is A_gains.
The value of my stocks on the date of divorce is B.

I would want community property on the date of divorce to be = B - (A+A_gains).
I think you need a prenup.

This is from your post on 11/30/23:
Gross income: $250k
House purchase price: $600k
Investable assets: $1m ... (All invested in 3 fund portfolio at 80% stocks; 20% bonds)
Cash: $250k
State: CA

Mortgage rate: 7.5%

Question:
Should I pay cash for the house or keep funds in the market? I can get $350k out of the $1m portfolio without paying significant taxes.
Whether you left your investable assets as is, or you put part of the assets into your house, I think it would be prudent to keep excellent records about your assets as of the week before the marriage, and get a prenup. With this significant amount of assets, I would not worry about paying an attorney a reasonable fee. Any attorney is going to be a fraction of the amount of your earnings on your assets over the course of a 20 to 30-year marriage. (Find an attorney who is reputable, has a good AVVO rating, check the state bar for their status, etc.)
Based on my own divorce attorney's advice, I would not trust any attorney who would assure you that a prenup is "ironclad."
It seems that you are planning on marrying someone with significantly fewer assets than yourself. Does this person know the amount of your savings and your yearly income? Do you know this information about their savings and income? (And I'm talking about not just what they say, but have you seen statements, W-2s, etc.?) Do you know if they have any debt that they have not disclosed? Sometimes the most attractive of people will lie about these things, for a variety of reasons.
Marriages need to be based on trust, and even though I am not going to EVER legally remarry, if I were planning to, I would want complete transparency about finances going into the marriage.
Of course, trust needs to encompass much more than the financial aspect of marriage. I would want to know a person well and see how they behave at all seasons of the year, in all situations (during the work week and on the weekends, with their family, with their friends, with your friends, with your family, when they are sick, when you are sick, on vacation, during the holidays, etc.), live with them for several years, go through pre-marital therapy with a good therapist, before committing to marriage.
If your friends tell you this person is selfish and after your money, believe them.
THEN, after all of that vetting, have an honest conversation about the prenup.
You have a lot to lose.
tesuzuki2002
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Re: How do I keep pre-marital 401k separate?

Post by tesuzuki2002 »

Quit your job... get rehired... or find a new role...

I'm in the same boat at the moment.
alil
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Re: How do I keep pre-marital 401k separate?

Post by alil »

I'm in a similar situation.

I bought two copies of Nolo Prenuptial Agreements book - one for myself and one for my fiancée.

We are reading one chapter at a time and discussing our views on it.

We write your own prenuptial agreement using the book templates.

Disclose all the assets liabilities incomes spending habits financial goals etc during this process - the book will guide you (has to be done at least one month before marriage - the sooner the better I think).

Once you arrive to a mutually beneficial agreement take the draft to a good lawyer and ask your partner to find own one his/her own. This may save lawyer's time and your money.

To answer your specific question, if you are saving in your taxable account the same amount as in the 401K and you plan on dividing the marital property 50:50 you could write the prenup so that all the 401K funds remain yours and the after-tax funds are his/hers in case of divorce.

Also, if you want your 401K funds to go someone else except your spouse in case your death, your future spouse will have to sign a waver provided by the plan after the marriage.

To me if your income is significantly higher the biggest financial risk is paying alimony of many years...

https://store.nolo.com/products/prenupt ... 9JEALw_wcB
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just frank
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Re: How do I keep pre-marital 401k separate?

Post by just frank »

LilyFleur wrote: Tue May 07, 2024 8:02 pm
yosemite_mountain wrote: Tue May 07, 2024 7:31 pm
CAsage wrote: Fri May 03, 2024 5:39 pm OP already recognizes that all earnings going forward are Community,
I am not ok with all earnings going forward being community property; I would like the earnings of my separate property to remain separate property.
For instance:

The value of my stocks on the date of marriage is A.
During the marriage, the gain on A is A_gains.
The value of my stocks on the date of divorce is B.

I would want community property on the date of divorce to be = B - (A+A_gains).
I think you need a prenup.

This is from your post on 11/30/23:
Gross income: $250k
House purchase price: $600k
Investable assets: $1m ... (All invested in 3 fund portfolio at 80% stocks; 20% bonds)
Cash: $250k
State: CA

Mortgage rate: 7.5%

Question:
Should I pay cash for the house or keep funds in the market? I can get $350k out of the $1m portfolio without paying significant taxes.
Whether you left your investable assets as is, or you put part of the assets into your house, I think it would be prudent to keep excellent records about your assets as of the week before the marriage, and get a prenup. With this significant amount of assets, I would not worry about paying an attorney a reasonable fee. Any attorney is going to be a fraction of the amount of your earnings on your assets over the course of a 20 to 30-year marriage. (Find an attorney who is reputable, has a good AVVO rating, check the state bar for their status, etc.)
Based on my own divorce attorney's advice, I would not trust any attorney who would assure you that a prenup is "ironclad."
It seems that you are planning on marrying someone with significantly fewer assets than yourself. Does this person know the amount of your savings and your yearly income? Do you know this information about their savings and income? (And I'm talking about not just what they say, but have you seen statements, W-2s, etc.?) Do you know if they have any debt that they have not disclosed? Sometimes the most attractive of people will lie about these things, for a variety of reasons.
Marriages need to be based on trust, and even though I am not going to EVER legally remarry, if I were planning to, I would want complete transparency about finances going into the marriage.
Of course, trust needs to encompass much more than the financial aspect of marriage. I would want to know a person well and see how they behave at all seasons of the year, in all situations (during the work week and on the weekends, with their family, with their friends, with your friends, with your family, when they are sick, when you are sick, on vacation, during the holidays, etc.), live with them for several years, go through pre-marital therapy with a good therapist, before committing to marriage.
If your friends tell you this person is selfish and after your money, believe them.
THEN, after all of that vetting, have an honest conversation about the prenup.
You have a lot to lose.
I second all of this. I am not a lawyer, but I have (divorced) friends who are. In a community property state some (or even most) assets that were non-marital on the day of marriage can remain so forever if they are simply not 'commingled', BUT earnings from all assets are (almost) universally marital property. The idea is that the marriage in an singular enterprise... everything it earns belongs to the enterprise.

Division of assets is simple: [Current enterprise value - SpouseA(premarital) - SpouseB(premarital)]/2 = share of settlement at divorce for each party.

Any substantial deviation from this, as desired by the OP, can only be achieved with a prenup. My understanding is that the best (most defensible) prenups are written with both parties having their own lawyer advising them, and attesting to that fact. This can be scary and expensive.

And even then, family court sees its primary mission to be the protection of innocents. Even if you had the world's best prenup that declared one spouse ineligible for any joint assets (i.e. penniless) a Family Court will still award that spouse enough money to provide them with a comfortable life (alimony) and to care for any children (assuming joint custody). In other words, the family court will never put a person or a child out on the street if there is money in the other spouses account.
Last edited by just frank on Wed May 08, 2024 11:35 am, edited 1 time in total.
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