Allocating participant’s separate property contributions over time as they were actually contributed, instead of all $140,000 on 1/1/2013, along with more frequent reconciliation of investment return, yields alternate payee a final payout of $740,766 (which is $199,010 MORE than alternate would have received had there been no tracing).
It should be understood that alternate payee is not “reaching over the fence” into participant’s portion of the account as a result of this calculation, merely alternate payee is receiving one-half of the community interest correctly calculated.
The methodology used by many TPAs can also unintentionally benefit the alternate payee instead of the participant, typically in periods of negative investment returns. Had the account lost value during the 2013-2019 period, participant would have received a disproportionate share of such losses to the benefit of alternate payee.
Practice Tip: When there have been post-separation separate property contributions by participant, consider having the community and separate property interest calculated through a current date prior to entering the QDRO.
We recommend discussing the need for an account tracing with your preferred QDRO provider.