What is a 401(k) and How Can Marriage Affect It?

Sep 14, 2022 | Finances, Relationships, Texas Prenups

If you’re a.) engaged to be married, b.) interested in investing but don’t know much about it yet, c.) starting a new job that offers a 401k, or d.) any combination of the above, we’ve got you covered. Below we’ll explore the ins and outs of what exactly a 401k is, what might be the benefits of having one, what happens to it when you get married, and how you can protect those hard-earned retirement savings in case of divorce. 

What is a 401k, and why is it awesome?

A 401k is a retirement account usually offered by an employer. Employees can make contributions to this account, and some employers match their contributions (Fernando, 2022). 

There are two main types of a 401k: the traditional 401k and Roth 401k. The major difference is in how these accounts are taxed. If you have a traditional 401k, you will be able to reduce your taxable income by making contributions. However, withdrawals are taxed–usually in the same way as ordinary income is taxed. If on the other hand you have a Roth 401k, you cannot deduct contributions from your taxes, but withdrawals are not taxed. However, both these conditions are assuming that you do not withdraw money before retirement. Withdrawing money from any retirement savings account prior to retirement is usually a great way to pay lots of extra taxes, in case that sounds like fun to you (Fernando, 2022).

How much money you’ll be able to save through a 401k is dependent on a range of factors, including how your contributions are invested, the annual return on these investments, whether or not your company offers contribution-matching, how much money you put into your account, economic ups and downs, and how many years prior to retirement you open your account. (Fernando, 2022). 

A 401k is generally speaking one of the ‘safer’ bets when it comes to investing. Although it won’t likely see any massive and sudden spikes in value, over time a 401k can amass a very significant amount of wealth. Never underestimate the power of compound interest. Especially for those who open a 401k when they are still young, earning potential over time is considerable. Some people even get returns from their 401k which are higher than the values of what they actually invested over time (Fernando, 2022). 

If you’re interested in starting a 401k but you are self employed, don’t despair–you may be able to start a solo 401k. Talk with a broker about this (Fernando, 2022).

What will happen with my 401k when I get married?

When you get married, wealth acquired during the course of your marriage becomes marital property. That means that any 401k contributions you made before marriage will be considered separate property, but contributions made after marriage fall into the category of marital property (Beagle, 2021).

If you ever divorce, any 401k contributions made before marriage will be subject to division by the courts, and your spouse (or ex-spouse) could ask for 50% of those contributions no matter how long the marriage lasted. The exact amount depends on whether you live in a community property state or a common law state, as well as the nuances of your particular state’s laws (Beagle, 2021).

If a spouse with a 401k is at least 59.5 years old, they are able to start withdrawing money from their 401k without a penalty. In that case, they may try to do so before or during divorce proceedings. If you do not have a 401k and are relying on your spouse’s, note that in the event of divorce, you are able to file a standing order requesting to maintain the status quo (eg. the other person cannot make any 401k withdrawals) until the divorce is finalized (Beagle, 2021). 

If one spouse does make any sizable withdrawals from a 401k shortly before or during divorce proceedings, the court may treat these as an advance on that person’s rightful share of the marital estate. That spouse might even then be required to hand over some of those funds to their ex-partner as a condition of the divorce settlement (Beagle, 2021). 

And in case you’re wondering, it’s not possible for one spouse to withdraw from the other’s 401k account, even during marriage. However, a spouse will be automatically listed as the default beneficiary of the account (Rothans, 2020), which means that they will get the money on the account if the account-holding spouse dies during the marriage. If a spouse with a 401k prefers to name someone else as the beneficiary (such as a child), they must seek permission from their spouse first (Brandon, 2014). 

Do you and your partner both have a 401k? If you’re asking yourself whether it’s possible to combine them, the answer is no. However, you do get the benefit of being able to reduce your taxable income twice as much as you could as single people. You can do this simply by both making significant contributions to your individual 401k. If you are like many couples in the US today and can only save a limited amount, you might strategize by checking whose 401k has better employer contributions, and then you can allocate more of your shared money to that spouse’s 401k. Of course, if both employers will match the amount you put into a 401k, that’s even better (Brandon, 2014). 

How can I protect my 401k retirement savings in the event of a divorce?

Firstly, we hope this never applies to you; we hope you never need to think about divorce or protecting your assets. However, one important step you can take towards protecting your retirement savings is to get a prenuptial agreement prior to getting married. You can include specifications on how you want your property (retirement savings) split or not in the event of a divorce. Note that financial disclosure is a necessity when writing a prenup; both spouses must make one another aware of all assets, including existing retirement accounts. If you’re hesitating over the idea of getting a prenup, keep in mind that it isn’t bad to ask or be asked for a prenup and that it can actually make your marriage stronger by helping you through important conversations around finances.

If you do ever find some of your 401k savings at risk of being on the losing end of a divorce settlement, all hope is not lost. The first thing you might need to do is adjust your expectations, though. If you’re in that situation, it might not be possible to protect the entirety of your 401k, especially if you plan on keeping a significant share of other marital assets. However, there are many things you can to do diminish the blow.

Every divorce includes a negotiation phase, during which you might offer an ex-partner something else (the house, the car, or a hefty chunk o’ change, for example) so that they’d be willing to forgo their share of your 401k savings (FindLaw, 2022). 

Although you might not be able to entirely protect 401k savings during a divorce, you might replenish these savings by making lifestyle changes that allow you to put more money towards your 401k every month. Although it may feel like you lost a lot of your retirement savings, consider that you would have likely used a lot of that money later on your spouse. When you’re single, all of the remaining funds go only towards your own expenses, which are far less than they would be if you were coupled and at least partially supporting a spouse (Hagen, 2022).

In cases where both parties have their own individual 401k with approximately the same amount of savings in them, things get a lot easier. Couples in this situation often elect to keep their own 401k funds and leave each other’s accounts alone (Hagen, 2022).

As always, consult a financial professional if you have any specific questions and contact an attorney for any legal advice on creating your prenup.

How HelloPrenup Can Help

HelloPrenup is the premier platform for creating prenuptial agreements online and gives couples the opp

The moral of this story is threefold.

1.) If you don’t already have a retirement savings account, try to get one!

2.) It’s important to be aware of how marriage may effect your 401k

3.) Get a prenup! Seriously. It’ll help you out a lot, both in marriage and (if applicable) divorce. 


Beagle. 2021. How Long Do You Have to be Married to Get Half of 401(k)s? Retrieved from: https://meetbeagle.com/resources/post/how-long-do-you-have-to-be-married-to-get-half-of-401-k#:~:text=Usually%2C%20you%20can%20get%20half,(k)%20being%20divided%20equally.

Brandon, E. 2014. How Marital Status Affects Retirement Benefits. Retrieved from: https://money.usnews.com/money/retirement/articles/2014/03/10/how-marital-status-affects-retirement-benefits

Fernando, J. 2022. 401(k) Plan: The Complete Guide. Retrieved from: https://www.investopedia.com/terms/1/401kplan.asp

FindLaw Staff. 2020. How to Protect Your 401k in a Divorce. Retrieved from: https://www.findlaw.com/family/divorce/how-to-protect-your-401k-in-a-divorce.html#:~:text=There%20are%20many%20options%20to,into%20your%20401(k).

Gravier, E. 2022. What You Need to Know About Combining Retirement Accounts With Your Spouse. Retrieved from: https://www.cnbc.com/select/can-you-combine-retirement-accounts-with-spouse/

Hagen, K. 2022. Protecting your 401(k) in a Divorce. Retrieved from: https://www.fool.com/retirement/plans/401k/divorce/

Rothans, J. 2020. How Marital Status Can Impact Your Retirement Accounts. Retrieved from: https://www.usmoneyreserve.com/news/executive-insights/marriage-retirement-impact/

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
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