Why Divorce Can Be a Big Deal for Your Federal Benefits—And What You Should Do Now

Key Takeaways:

1. Divorce can significantly affect your federal benefits, especially your retirement, health insurance, and survivor benefits, so you need to understand these changes early.
2. Immediate action is required after a divorce to protect your benefits, including reviewing your beneficiary designations, updating paperwork, and considering your financial options.

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Divorce and Your Federal Benefits: Why It’s a Big Deal

• Also Read: Leaving Your TSP Alone Can Be Risky—Especially If You’re Already Retired
• Also Read: FERS Pension Gone? Here’s What Really Happens If You Resign Tomorrow
• Also Read: These TSP Tips Are What Financial Planners Wish More Government Employees Knew

If you’re a federal employee going through a divorce or have already finalized one, it’s important to understand how this life change can impact your benefits. Divorce doesn’t just affect your personal life; it can also have significant financial implications, especially when it comes to your federal benefits. Let’s break down what you need to know and, more importantly, what steps you should take to protect yourself financially in 2024.

How Does Divorce Impact Your Federal Retirement?

One of the first things you’ll want to consider is how your federal retirement benefits are affected by divorce. The Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS) provides retirement income, and depending on your divorce agreement, your former spouse may have a right to a portion of your pension.

Court Orders Matter
Your retirement benefits could be split if your divorce involves a court order. A court-ordered division of benefits can happen under a legal document called a court order acceptable for processing (COAP). This means that a percentage of your future pension benefits could go to your former spouse. Importantly, the Office of Personnel Management (OPM) will only divide your pension according to what’s outlined in the divorce decree or court order.

Retirement Timeline
For those nearing retirement, the financial impact of divorce could be more immediate. For example, if you plan to retire in 2024, it’s essential to know how much of your pension could be assigned to your ex-spouse based on the divorce agreement. Waiting until retirement is too late—you need to review the terms well in advance to make sure you’re financially prepared for any potential changes in income.

What About Health Insurance?

Health insurance is another area where divorce can have a major impact. As a federal employee, you probably have health insurance through the Federal Employees Health Benefits (FEHB) program. After a divorce, your ex-spouse is no longer eligible to stay on your FEHB plan. They will need to find alternative coverage, which could include COBRA or a private plan.

Coverage for You
You, as the federal employee, can continue your own FEHB coverage, but you’ll need to change from a family plan to a self-only plan, unless you have dependent children. Keep in mind that COBRA coverage, which allows your former spouse to temporarily continue under your health plan, can be expensive and is typically only available for up to 36 months after the divorce.

Survivor Benefits: What You Need to Know

Many federal employees elect survivor benefits as part of their retirement package. These benefits ensure that if you pass away, your spouse continues to receive a portion of your pension. However, after a divorce, your former spouse is no longer automatically entitled to these survivor benefits unless it’s explicitly stated in your divorce settlement.

Renaming a Beneficiary
To protect your current spouse or future beneficiaries, it’s crucial to update your designations. You can rename the beneficiary on your retirement account through OPM forms, but this needs to be done promptly after the divorce. If you remarry in the future, you’ll want to make sure your new spouse is listed as the primary beneficiary if that is your intent.

Electing or Waiving Benefits
Keep in mind, if your divorce agreement mandates that your ex-spouse retains the survivor benefits, you must elect this as part of your retirement package when you file for benefits. It’s essential to understand that even if you remarry, your former spouse may still receive a portion of the survivor benefits if it’s outlined in the divorce settlement. This could affect the financial security of your current or future spouse, so make sure you’re clear on the terms of your divorce agreement.

Can Your Ex-Spouse Access Thrift Savings Plan (TSP) Funds?

The Thrift Savings Plan (TSP) is similar to a 401(k) and is a key component of your retirement savings as a federal employee. Like your pension, TSP funds can be divided during a divorce, but the court must issue a retirement benefits court order (RBCO). This order tells the TSP how much of your balance to give to your ex-spouse.

Immediate Access
Once the RBCO is processed, your ex-spouse can receive a lump-sum payment or roll the funds into their retirement account. You need to know that any division of TSP funds will reduce the amount you have available for your retirement, so it’s important to review your retirement strategy accordingly.

Why Should You Act Now?

If you’re newly divorced, waiting to make changes to your federal benefits could cost you. Here’s what you should do immediately:

1. Review Your Beneficiary Designations
   After a divorce, it’s essential to update the beneficiaries on your retirement accounts, life insurance policies, and TSP. Don’t delay this step, because outdated beneficiary designations could result in your benefits going to someone you no longer intend.

2. Update Your Health Plan
   Once the divorce is final, you’ll need to contact the human resources department or OPM to update your FEHB plan. Changing to self-only coverage (if no children are involved) can help you save on premiums.

3. Review Court Orders
   Make sure you fully understand the court orders that were part of your divorce settlement. If your former spouse is entitled to part of your pension or TSP, you’ll want to ensure the proper paperwork is filed with OPM and the TSP administrator. This helps to avoid surprises later on, especially as you near retirement.

4. Consult a Financial Planner
   A divorce can complicate your financial situation, especially when it involves federal benefits. It’s a good idea to consult a financial planner or legal expert who understands the specifics of federal employment benefits. They can help you navigate the complex rules and ensure you’re making informed decisions.

What if You Remarry?

Remarriage after divorce can bring a whole new set of changes to your federal benefits. If you remarry, your new spouse may be eligible for survivor benefits, but this depends on whether those benefits were assigned to your ex-spouse in the divorce settlement. It’s important to update your beneficiary forms and possibly renegotiate your benefits.

If you had children from your previous marriage, you’ll also want to ensure that their financial future is protected. Federal employees can designate children as beneficiaries for life insurance and retirement benefits, so reviewing your options is important in this case as well.

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Securing Your Federal Benefits After Divorce

Divorce can significantly alter your financial landscape, especially when it comes to federal benefits like your retirement, health insurance, and TSP. By acting quickly, updating your paperwork, and understanding the legalities of your divorce settlement, you can protect your financial future. Remember, these are critical decisions that can affect both your current and future financial well-being, so take the time now to ensure everything is in order.