Key Takeaways:
- Divorce can significantly impact your federal pension, TSP, and other benefits, so it’s important to understand how these assets are divided.
- Court orders and settlements often determine how retirement benefits are split, so being proactive can help protect your financial future.
Divorce as a Federal Employee: What You Need to Know
Divorce is tough—there’s no getting around that. And if you’re a federal employee or retiree, splitting up isn’t just about who gets the house or car. Your federal benefits, including your pension, Thrift Savings Plan (TSP), and health coverage
- Also Read: What Changes to Federal Benefits Could Mean for Your Retirement Plans This Year
- Also Read: Federal Employees with Military Backgrounds: Don’t Miss Out on These Hidden Benefits
- Also Read: How Civilian Jobs Can Supercharge Your Military Service—And Secure a Comfortable Retirement
How Divorce Impacts Your Federal Pension
As a federal employee, your pension is one of your biggest retirement assets. If you’re under the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS), your pension can be split with your ex-spouse during a divorce. But, how does that happen? It comes down to what’s known as a court order.
Court Orders and Pension Division
A court can issue what’s called a Court Order Acceptable for Processing (COAP) or a Qualified Domestic Relations Order (QDRO) to divide your pension. This means that your ex could get a portion of your pension when you retire, based on the number of years you were married while working for the government.
For example, if you were married for 10 years out of a 30-year federal career, your ex might be entitled to one-third of your pension. The exact amount is determined by the court and the divorce agreement, so every situation is different.
Timing of Pension Payments
It’s important to know that your ex-spouse doesn’t get access to your pension immediately upon divorce. They only start receiving their share when you start collecting your pension. So, if you’re years away from retirement, your ex will have to wait until you hit retirement age to get their portion.
What Happens to Your Thrift Savings Plan (TSP)?
The TSP is essentially the federal government’s version of a 401(k), and just like private-sector retirement accounts, it can be divided in a divorce. The key difference is how this division happens.
Splitting the TSP
Similar to your pension, a court order (QDRO or COAP) can direct the split of your TSP. The court will outline how much of your TSP should go to your ex-spouse, whether it’s a specific dollar amount or a percentage of the account.
The TSP provides a simple method for handling this—once the order is in place, they’ll transfer the funds to your ex’s retirement account. That means you don’t have to worry about sending your ex-spouse a check every month. The TSP makes the process relatively easy, but it’s still a big hit to your retirement savings, so it’s crucial to prepare for this.
Post-Divorce TSP Contributions
One thing to keep in mind is that once the division happens, your future contributions to the TSP remain yours. Any money you put into the TSP after the divorce isn’t subject to splitting with your ex-spouse. So, if you’re going through a divorce, it’s important to focus on rebuilding your savings after the dust settles.
Federal Employee Health Benefits (FEHB) Coverage
Health insurance is often a significant concern during a divorce, and if you’re covered under the Federal Employee Health Benefits (FEHB) program, it’s no different. Here’s what you need to know about what happens to your health coverage post-divorce.
Health Coverage for Your Ex-Spouse
Once your divorce is finalized, your ex will lose access to your FEHB coverage. However, they’re eligible for Temporary Continuation of Coverage (TCC) for up to 36 months. While TCC provides an extension of FEHB coverage, it’s not cheap. Your ex-spouse would be responsible for the entire premium, including the portion that your federal employer usually covers.
Your Own Coverage After Divorce
The good news for you is that your FEHB coverage continues unaffected. If you have children, you’ll need to make sure they’re covered, but your health benefits won’t change after the divorce. You can continue your plan or switch during open season if you need different coverage.
What About Survivor Benefits?
One of the most overlooked parts of divorce for federal employees is the question of survivor benefits. These are the payments that continue to a spouse after a federal employee dies. If you don’t take action during the divorce, your ex-spouse might remain eligible for survivor benefits from your pension, depending on the court order and settlement.
Renouncing or Assigning Survivor Benefits
If you don’t want your ex to get survivor benefits, you need to address this during the divorce proceedings. If the court awards survivor benefits to your ex-spouse, you’ll have to take a reduced pension to fund those benefits. On the other hand, if both parties agree, you can waive survivor benefits in exchange for a larger pension during your lifetime.
Life Insurance and Divorce
The Federal Employees’ Group Life Insurance (FEGLI) program is another asset that can come into play during divorce proceedings. A court can order you to maintain your ex as a beneficiary, especially if there are children involved. If this happens, you’ll be required to keep your ex-spouse as the primary beneficiary, meaning they’ll receive the life insurance payout when you die.
If there’s no court order in place, you’re free to change the beneficiary designation after the divorce is finalized. It’s always a good idea to revisit your beneficiary forms after a divorce to ensure they reflect your wishes.
Taking Steps to Protect Yourself
Divorce can feel overwhelming, especially when it comes to splitting up your retirement assets and benefits. However, there are a few key steps you can take to protect yourself financially:
- Get Legal Advice Early: Understanding how your benefits will be impacted before the divorce is finalized is critical. A lawyer familiar with federal benefits can help ensure you’re not caught off guard.
- Keep Track of Paperwork: Make sure you have copies of all your benefits documents, including pension statements, TSP balances, and health insurance details. This information will be vital during the divorce negotiations.
- Understand the Long-Term Impact: Dividing up retirement assets can have long-term effects on your financial health. If possible, work with a financial planner to rebuild your retirement savings after the divorce.
Rebuilding After the Divorce
Once the divorce is over, it’s time to focus on the future. While it might feel like a setback, you have plenty of time to rebuild your retirement savings and adjust your benefits for your new situation.
You can start by reassessing your TSP contributions and exploring ways to maximize your savings going forward. Take a fresh look at your health coverage during open season and make sure your life insurance beneficiaries are updated. Divorce might change your plans, but it doesn’t have to derail your retirement.
Navigating Retirement After Divorce
Divorce as a federal employee can complicate your retirement plans, but with some planning and the right support, you can emerge with your financial future intact. Understanding how your pension, TSP, and benefits are affected gives you a leg up in negotiations, and taking proactive steps will help you protect your retirement. By staying informed and focused, you’ll be well on your way to a more secure financial future.
