401(k) Tracing

When Tracing is Needed

If you represent a client who has contributed to a defined contribution plan either prior to the marriage or after the divorce, you should seek to have those contributions and investment gains excluded from the marital property that is subject to division. In most situations, if you do not submit evidence to the contrary, those investment gains will be considered marital.

Assigning the “Marital Portion” in a QDRO

Some attorneys submit a QDRO that attempts to assign, “half of the marital portion of the account” and wrongly assume that the plan will just sort it out. When a plan administrator receives a QDRO containing assignment language like this, they may proceed in several ways. It is possible that they will reject the QDRO due to the inability or unwillingness to do the calculation. It is also possible that the plan administrator will approve the QDRO but simply subtract the balance on the date of marriage from the balance on the date of divorce, ignoring the investment gains on the participant’s separate property. They could also approve the QDRO and interpret “marital portion” in some other way.

Passive Growth Analysis

Our Passive Growth Analysis traces the account and proves the growth on the participant’s separate property. For pre-marital contributions, we start with the balance on the date of marriage and, from quarterly statements, determine the investment gain/loss for each period. By splitting the contributions and investment return between marital and separate property, we can trace each individually through all statement periods and show how the initial pre-marital balance has grown. Contributions made after the divorce can also be traced in a similar fashion.

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