Divorce, Retirement and the Federal Employee
By Ann Ozuna
Friday, March 5, 2010
Studies have shown that one of the top five things that can wreck your retirement is divorce or a legal separation just prior to retirement and that is especially true for the federal employee.
Whether you are CSRS or FERS, your retirement is property subject to division and can be cut by more than half, your TSP decimated, and survivor elections for any subsequent spouse limited or extremely expensive if you and your divorce lawyer don't understand how federal benefits can be awarded in a divorce. Federal benefits are not subject to ERISA, the law used to divide private sector retirements. Rather, the Office of Personnel Management (OPM) governs how benefits may be awarded and requires certain orders or wording in a decree.
Improper wording in an order or decree can send the federal employee back to court for a clarification order or could make the fed worth more to the former spouse in death after retirement than they were while living. Award of a "full survivor benefit" to a former spouse could make it prohibitively expensive to award the survivor benefits to a subsequent spouse and allow him or her to keep federal health benefits upon your demise.
As a minimum, your retirement benefits, survivor benefits and who pays for them, your rights to withdraw your contributions upon quitting, and your TSP are up for discussion. Your decree could also require you to maintain and pay for a certain level of life insurance. You cannot keep a former spouse on your health insurance after divorce even if you still must provide family plan insurance for your minor children.
Depending on the wording in the decree, your former spouse may be eligible for Temporary Continuation of Coverage (TCC) for 3 years for a cost of 102% of single premium or Spouse Equity Act Continuation of Coverage for a cost of 100% of single premium. Former spouses must make application in a timely manner to get this coverage.
If you are already retired when divorce occurs, any survivor election you may have made at retirement is terminated unless the decree specifically says it is to continue.
OPM and the Thrift Savings Board have free summary publications available for download which explain how the systems work and what they and your agency can and cannot do for you as you are working through your divorce property negotiations. OPM Booklet is at www.opm.gov/forms/pdfimage/RI84-1.pdf.
OPM has a larger Handbook for Attorneys which contains all the clauses and acceptable language for the Retirement Benefits Court Order and Domestic Relations Order which should be prepared to divide your retirement and TSP. The 165 page publication is also available for download from OPM. (http://www.opm.gov/retire/pubs/pamphlets/ri83-116.pdf) The TSP Handbook is at http://www.tsp.gov/forms/tspbk11w.pdf. Question your attorney's knowledge of these documents in advance prior to putting down a retainer.
Your agency can only give you limited assistance in valuing your retirement benefits. The amount you have paid into the retirement system is not the amount up for division, but rather the stream of payments you will receive after retirement. The agency may be able to give you a retirement estimate as of a certain date, but is not able to give you a "present value" of that stream of payments nor advise you on how to divide them.
The Thrift Board is a little more helpful in that they will give you a value of the account and/or loans as of a specific date, can freeze the account from withdrawals, and change beneficiary information with a written/faxed request.
Once you are divorced and have any reference to the division of your federal retirement benefits in your decree, it is worth sending a certified copy of your order(s) to the OPM Court Orders Branch, PO Box 17, Washington DC 20044 in advance of your retirement. They will tell you if your order is acceptable for processing (a COAP) and what they say it will do to your retirement. If that is not what you had in mind, you will have to go back to court and get your decree amended to comply with OPM's requirements.
If you have an order dividing your TSP, your former spouse can process that order immediately with the TSP and will be responsible for any taxes due on the withdrawal. TSP's Court Orders branch is at
TSP Legal Processing Unit
CODIS — P.O. Box 4390
Fairfax, VA 22038-4390
(Editor's Note: Watch for Ann's next column on specifics of how the annuity can be divided)
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