Segregating a Fixed $ Amt. - Calcs

[Guest num1sherm]

A draft order provides for the segregation of a fixed $ amount for the alt. payee - w/o any adjustment for earnings/losses between the valuation date and the segregation date. The recordkeeper segregated a larger amount for the alt. payee stating that the amount transferred must represent the historical cost basis of the assets pursuant to IRC sec. 72(m)(10). I'm a bit confused as to how this Code section dictates that the participant's investment in the contract trumps the Order which directs that a fixed amount as of a date certain be segregated. Am I missing something - either obvious or subtle?

[QDROphile]

I think section 72(m)(10) is relevant only when the participant has after tax amounts. The tax basis has to be split proportionately to prevent games with differing marginal tax rates between the participant and alternate payee. In other words, the order cannot allocate after tax amounts between the participant and alternate payee in a screwy way compared to the division of the economic value of the benefit. Otherwise section 72(m)(10) has nothing to do with investment gains and losses relative to purchase price of any assets credited to a participant's account.

Unless the plan is an ESOP or something very unusual is going on, tax basis is independent of investments anyway, so it sounds like your record keeper doesn't get it and is making a mess.

[Guest num1sherm]

Thanks for the follow up. I tend to agree with you. This is a fairly plain vanilla 401(k) that does not provide for after tax contributions. Therefore, if the value to be segregated is $x,000 (and is not to be adjusted for investment gains and losses that would have occurred from the date of divorce), then it seems to me that $x,000 should be segregated for the benefit of the alt. payee today (i.e., as soon as administratively feasible now that the final order has been presented to the record keeper for administration) and that is the end of it - no more $ and no less $.

[david rigby]

...as soon as administratively feasible...

Ah, there's the rub (whatever that means). Check the QDRO for any information on this, and any potential definition "adjustment" for the time between a specified date and the actual segregation date.