Key Takeaways
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Divorce can significantly impact your federal retirement benefits, including your pension, TSP, and survivor annuity options, often reducing what you expect to receive.
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Failing to understand how court orders and spousal entitlements work under FERS or CSRS could leave you financially exposed, especially if divorce occurs near or after retirement.
Why Divorce Alters the Course of Your Retirement Planning
- Also Read: 6 Important Changes That Could Impact CSRS Retirees in the Future—And What You Should Watch For
- Also Read: 3 Hidden Costs of Early Retirement Under FERS That Can Take You by Surprise
- Also Read: 6 Important Updates Federal Employees Should Know About Hiring, Pay, and Retirement
If you’re planning for retirement in 2025 or already retired, it’s essential to reassess where you stand. Many federal workers are caught off guard when their benefits are split, reduced, or reassigned.
Understanding How Court Orders Can Impact Your Pension
In a divorce, the court may issue a Court Order Acceptable for Processing (COAP) to divide your pension. The Office of Personnel Management (OPM) requires this document to carry out pension allocations to former spouses. The specifics of your COAP will determine:
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Whether your former spouse receives a portion of your monthly annuity
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How cost-of-living adjustments (COLAs) are handled
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Whether your former spouse continues to get benefits after your death
For example, under FERS, the former spouse is often entitled to up to 50% of the “marital share,” which is the portion of your pension earned during the marriage. This can reduce your monthly income for life.
What Happens to Your Survivor Annuity?
Many federal employees overlook the survivor annuity when navigating a divorce. Under FERS or CSRS, your ex-spouse may be awarded a full or partial survivor annuity, ensuring they continue to receive income after your death.
This has two main implications:
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You may be required to elect a survivor annuity for your former spouse, even if you remarry.
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Your annuity amount will be reduced to account for the survivor benefit.
A full survivor annuity typically reduces your monthly annuity by 10%, which can amount to thousands of dollars annually.
The Hidden Impact on Thrift Savings Plan (TSP)
The TSP is another area where divorce can have long-lasting financial consequences. A Retirement Benefits Court Order (RBCO) can award a specific dollar amount or percentage of your TSP account to your ex-spouse.
Key things to know:
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Your TSP account may be frozen during the divorce process.
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Earnings on the awarded portion may continue to accrue until distribution.
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The division is tax-free for the ex-spouse if rolled over into an IRA, but you could still face tax implications depending on timing and method of distribution.
If you’re 50 or older and relying on catch-up contributions to boost your TSP in the final years before retirement, a divorce could derail those efforts.
Health Insurance Eligibility Changes Post-Divorce
Divorce directly affects your Federal Employees Health Benefits (FEHB) eligibility for family members. Once a divorce is finalized:
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Your former spouse is no longer eligible under your FEHB plan.
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They may qualify for Temporary Continuation of Coverage (TCC) for up to 36 months, but they must pay the full premium.
This can cause unexpected financial pressure, especially if you were relying on FEHB to support your former spouse’s healthcare.
The Time Factor: Why Timing of Divorce Matters
When a divorce occurs is just as important as the fact that it happens. If your divorce is finalized after retirement, the financial outcomes can be much more severe. You may have already locked in annuity elections and survivor benefits, which are difficult or impossible to change.
On the other hand, divorcing before retirement gives you more flexibility to:
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Adjust your TSP contributions
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Recalculate your pension expectations
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Choose annuity options that better suit your post-divorce status
If you’re nearing retirement in 2025, it’s critical to evaluate how any ongoing or potential divorce proceedings will impact your benefits.
Mistakes Federal Employees Often Make
Too often, federal employees assume their retirement assets are fully protected or solely theirs. Some common missteps include:
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Not understanding the difference between community property states and equitable distribution states
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Assuming the TSP is untouchable in a divorce
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Forgetting to update beneficiary designations after divorce
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Overlooking the need for a COAP or RBCO
Each of these errors can lead to unintended financial loss or legal complications that could take years to resolve.
Recalculating Retirement After Divorce
If you’re already divorced, now is the time to do a full recalculation of your retirement benefits. Start by:
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Reviewing your pension estimate, factoring in any court-mandated division
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Checking your TSP balance post-distribution
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Reevaluating your FEHB coverage and costs
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Revisiting your life insurance designations, especially if enrolled in FEGLI
This recalculation should become part of your annual financial review to avoid surprises when your retirement date arrives.
Survivor Benefits and Remarriage Considerations
If you remarry after a divorce, your ability to provide a survivor annuity to your new spouse may be limited if your former spouse already holds entitlement to one. You can only provide a survivor annuity to one person, unless you reduce benefits to both.
You’ll need to:
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Review your divorce decree carefully to determine what’s already awarded
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Make changes during the 18-month window post-divorce or retirement to alter elections
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Consider the cost of reduced annuity payments if covering more than one survivor
Being proactive here can prevent serious problems for your future spouse if something happens to you.
Legal and Financial Advice Is Essential
Divorce and federal retirement planning should never be handled without expert help. You’ll want to consult:
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A family law attorney familiar with federal retirement benefits
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A financial planner experienced in public sector retirement
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A licensed agent to walk you through FEHB, FEGLI, and survivor benefit options
Failing to bring in the right professionals can lead to avoidable mistakes that permanently reduce your retirement income.
Don’t Let Divorce Derail Your Financial Future
Retirement should be a time of financial stability, not surprise setbacks. If you’re going through or anticipating a divorce, especially in 2025, now is the time to understand how your federal benefits could be affected.
Divorce can reshape your retirement more than you think. Reach out to a licensed agent listed on this website to get professional help making informed decisions that protect your long-term financial future.
