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When a man’s brother died, the brother and his sister-in-law both laid claim to half a million dollars in a 401k. According to the widow federal law required the money to go to her. According to the brother state law required the money to go to him.

In Moore v. Moore the Supreme Court said both the widow and the brother were right. The 401k check went first to the widow under federal law. Then she had to turn the money over to the estate, where the brother would receive it.

The widow had signed a prenuptial agreement.

A prenuptial agreement is commonly known as a prenup. Prenups are contracts entered into before marriage. When properly invoked, they can determine what happens to certain property when the marriage ends.

In Moore, the deceased and the widow had a prenup. The agreement said each party would keep their own property. Moreover, each of them agreed that they would not “take or receive” certain assets. In the document the widow agreed not to take or receive the 401k.

Federal law doesn’t care about your prenup.

Federal law restricts how retirement accounts can be paid out. That law, ERISA, required that funds be paid out to the widow unless there was a waiver.  The widow and her husband had not signed a valid ERISA waiver before he died.

Moreover, ERISA preempts state law. The prenup is merely a contract under state law. That means that the plan administrator – the individual writing the check for the 401k – was required to ignore the prenup.

Once the 401k is paid out, the prenup applies.

The Supreme Court ruled that the 401k was properly paid out to the widow under federal law.  However, the case didn’t end once she received the funds. After receiving payment the terms of the prenup took over.

According to the Supreme Court, one could follow the other. While federal law required the initial payment be to the widow, the prenup still applied. The terms of the agreement required that the widow write a check for the 401k to the estate.

How will my prenup affect my estate?

The deceased had signed his will shortly before signing the prenup. Under the circumstances, it seems clear that the deceased had his will in mind when the prenup was written. However, that may not be the case for younger couples.

If you’re going to be signing a prenup, be sure to talk to you lawyer about how it may affect your estate. Ideally the will and the prenup would make clear that one has considered the other. Though the deceased’s intentions appear to have been met in this case, one could imagine a situation where the opposite happened due to inattention.

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