I had something like this in mind:
Have 2 tabs in contacts: regular and archive (Or archive contact list can be viewed by a select-able option in the menu).
The contacts should still be searchable, so the functionality is not changed, just the placement of some contacts (Even the sync won't be affected with this)
I have attached my SecContacts.apk for reference. I would prefer if you put a guide instead of just modifying this, so the whole community can benefit from this.