By Jenny Kiffmeyer, J.D – The Retirement Learning Center
Retirement Plan Benefits and Prenuptial Agreements Do Not Mix
ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in California is representative of a common question related to spouses as retirement plan beneficiaries. The advisor asked: “My client asked me what effect, if any, a prenuptial agreement would have on 401(k) plan assets?
Highlights of Discussion
Generally, a prenuptial or antenuptial agreement is an agreement made between a couple before they legally marry by which they forfeit future rights to each other’s property in the event of a divorce or death. The short answer is that a prenuptial agreement has no impact on a spouse’s claim to 401(k) plan assets because it does not satisfy the applicable spousal consent requirements of Internal Revenue Code Section (IRC §) 417(a)(2) and Treasury Regulation Section (Treas. Reg.) 1.401(a)-20, Q&A 28.
In most cases, spousal consent is required before a plan can pay out benefits in a form other than a Qualified Joint and Survivor Annuity. The Retirement Equity Act of 1984 (REA) added the mandate to obtain spousal consent before a plan participant could take a distribution so that the nonemployee spouse would have some control over the form of benefit the participant chose, and would, at the very least, be aware that retirement benefits existed. There are exceptions to the spousal consent rule when
- The payable benefit is ≤ $5,000;
- There is no spouse or the spouse cannot be located;
- The spouse has been legal abandoned or the couple is legally separated;
- The spouse is incompetent; or
- The plan must satisfy requirement minimum distribution rules.
For its reasoning on antenuptial agreements, the IRS relied on several court cases, which found that the antenuptial agreements were not valid because, in part, they were signed by the participant’s fiancée (not spouse), and the agreements did not comply with REA since they did not specify the nonspouse beneficiary who would receive the benefit [See Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992), cert. denied, 508 U.S. 912 (1993) and Nellis v. Boeing Co., No. 911011, 15 E.B.C. 1651 (D.Kan. 5/8/1992)].
Based on numerous court cases and Treasury Regulations, the IRS has made it clear that a prenuptial agreement has no impact on a spouse’s claim to 401(k) plan assets.