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There is generally a time lag between the date the Alternate Payee's share of the participant's account is divided and the actual distribution to the Alternate Payee. In many cases ongoing haggling delays implementation of a Domestic Relations Order and distribution to the Alternate Payee.

Consider the Following Scenario.

The marital portion of Listajo Pacaro's 401(k) on June 14, 2012 was $475,000.00. Jane Pacaro was awarded half of this account or $237,500.00. Unfortunately due to the intransigence of one or both of the spouses the drafting of a Domestic Relations Order assigning Jane her share is delayed. During this delay, Listajo is convinced that he has found a get rich quick investment and directs $380,000.00 of his 401(k) Plan's assets into Ureka Communications. This is a good faith investment on Listajo's part. Unfortunately Ureka proves to be a very poor investment choice.

Jane's "Award" and Expectancy: $237,500.00

Jane Actually Received: $86,000.00

Explanation of Jane Pacaro's Loss

Marital Account's Value at Time of Award: $475,000.00

Assigned but not segregated for Jane: $237,500.00

Invested in Ureka by Listajo: $380,000.00

Jane's "part" of investment: $190,000.00

Loss on Jane's "part": $151,500.00

Remainder to Jane after loss: $38,500.00

Jane's "part" from safe investments: $47,500.00

Actual Distribution to Jane: $86,000.00

($38,500.00 + $47,500 = $86,000.00)

Had Jane's Award Been Segregated.

Award to Jane: $237,500.00

Thus, the failure to timely "segregate"

Jane's interest in this plan cost Jane: $151,500.00


To protect Jane, her attorney should have:

  • Requested a "QDRO Lock" be placed on Jane's interest in the Plan
  • Requested a "Segregation" of Jane's portion of the plan's assets. Note that a true segregation is not likely until the actual Domestic Relations Order is received by the Plan, nevertheless this is a tactic that should be employed to the extent possible by the attorney representing the Alternate Payee


To avoid decay in the worth of the Alternate Payee's award, it is suggested that attorneys representing the Alternate Payees argue for the prompt and voluntary segregation of the Alternate Payee's award into a separate and safe account. Such action will not produce great gains for the Alternate Payee, but of perhaps greater significance, nor will it result in a devastating loss. The focus of the attorney representing the alternate payee should be preservation of principal. This can best be accomplished by voluntary transfer into a fixed income account.