A major concern for both spouses in a divorce is securing their financial future. In addition to dividing physical assets such as homes and vehicles, the matter of retirement accounts plays a central role in the proceedings. One retirement plan of particular importance to federal employees is a Thrift Savings Plan.
What Is A Thrift Savings Plan?
A Thrift Savings Plan, or TSP, is a retirement plan offered to employees of the federal government. It is a defined contribution plan that gives federal workers similar benefits to those in the private sector under 401K plans.
Those with a TSP account can choose between a traditional treatment or a Roth option when contributing, or they can put funds into certain investment options. Like other retirement assets, when people who have a TSP get a divorce, they typically need to divide the plan with their spouse.
When private-sector retirement plans are divided in a divorce, a Qualified Domestic Relations Order, or QDRO, is used to split the asset. However, Thrift Savings Plans do not automatically follow QDROs issued by courts as these only apply to retirement plans within the private sector. Instead, a Retirement Benefits Court Order, or RBCO, is used to divide a TSP.
What Does An RBCO Entail?
There are a few requirements that apply to RBCOs. First, the RBCO must be issued by a court in one of the 50 states or the District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, or Puerto Rico. The RBCO must also expressly refer to the Thrift Savings Plan rather than making general references such as “government retirement benefits” or Thrift savings account.”
In addition, the payments must be described using specific terms. The TSP will only award specific dollar amounts or percentages of the account as of a specified date. Finally, these orders can only require that payment be made to the participant’s former or current spouse or dependents.
Changing TSP Beneficiaries
Federal employees need to be aware that divorcing does not automatically change the beneficiary on their TSP. Therefore, it will be necessary to use form TSP3 to change the beneficiary for the part of the account that is retained following the divorce. If they fail to take this step, the TSP will payout to the beneficiary listed, even if it is their former spouse and the former spouse waived any interest in the TSP account.
Freezing TSPs
Individuals who are divorcing a spouse with a TSP are advised to get an RBCO as early in the process as possible because doing so will prevent the employee from being able to withdraw money from the account. A spouse or the spouse’s attorney may obtain basic information about a TSP if they make a written request. However, this information is limited to the account balance, loan balances and statements.
A judge will normally issue a court order to freeze a TSP account during a divorce. This means that no one can make withdrawals or loans from the account until the divorce has been finalized by the court. While it is frozen, the employee can still make contributions to the account and change their contribution allocation or investment choices.
They must also continue to make payments on any existing loans. Any outstanding loan balances will be added to the account balance when calculating the former spouse’s award unless it has been excluded from the court order. It may be necessary to obtain a separate court order to allow the TSP to provide the former spouse the payment awarded to them in the divorce decree.
A former spouse is generally entitled to as much as 50% of the marital share of a TSP during a divorce. The marital share is the length of time that the federal employee contributed to the pension after the date of their marriage up until the date of their divorce.
At any stage of a divorce, legal separation or annulment, a Retirement Benefits Court Order may be issued awarding the current or former spouse or dependents a specified portion of the account or a specified dollar amount.
In cases where a couple is willing to work together, it may be possible to seek other options to address property division. For example, a spouse who is entitled to a portion of a retirement account may wish to receive something else that has an equal value instead, such as a piece of real estate.
Request A Consultation With The Maryland Divorce Attorneys
Navigating a divorce as a federal employee can be complicated, and you need a reputable legal team on your side. To find out more about how your federal benefits can be affected by your divorce or to talk to a divorce attorney about your options, get in touch with the experienced team at Milstein Siegel to schedule a consultation.
