The existence of a loan under a retirement plan account is something that needs to be considered in how the apportionment to the alternate payee is determined.
First, the loan always remains the property and obligation of the participant.
Second, however, when a loan exists, there are two ways in which the account split under at QDRO can be determined.
The QDRO may state that the percentage to be allocated to the alternate payee is determined without regard to the loan. For example, if a 401(k) account has a value of $100,000, which is comprised of $80,000 of invested assets and $20,000 in a loan, if the QDRO states that the split is determined without regard to the loan, and assuming a 50% split for the sake of this example, the alternate payee would receive $50,000, or 50% of the full $100,000. However, the alternate payee account would be comprised of $50,000 of invested assets and the participant account would be comprised of $30,000 of invested assets and the $20,000 loan.
Alternatively, the QDRO may state that the percentage to be allocated to the alternate payee is determined after netting out the loan amount. For example, if a 401(k) account has a value of $100,000, which is comprised of $80,000 of invested assets and $20,000 in a loan, if the QDRO states that the split is determined on the net basis, and again assuming a 50% split for the sake of this example, the alternate payee would receive $40,000, or 50% of the net $80,000 invested assets. The participant account would be comprised of $60,000, $the remaining $40,000 of the invested assets and the $20,000 loan.
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