How a Divorce May Impact Your Federal Benefits
By Ann Ozuna
Thursday, March 11, 2010
In my previous column we discussed in general how your federal benefits are property up for division in divorce. This column discusses some of the specifics.
OPM must have all the information it needs in your decree or order to divide your retirement. Therefore you must specify "gross annuity", "net annuity," or some other easily computable description of your CSRS or FERS annuity amount.
You can allocate a flat dollar amount, a percentage or an amount determined by a formula to your former spouse. If you are using a formula, all the numbers or dates to be used in the formula must be "readily determined" from information available to OPM. OPM alone will determine if your decree and orders are a "Court Order Acceptable for Processing" (COAP). There are specific paragraphs your attorney can use from the "Handbook for Attorneys" to carry out what has been agreed upon.
A popular method of division is "half of the value of retirement at the time of separation/divorce" or something along those lines. OPM usually interprets this as a "Prorata share" of the retirement check upon the fed's retirement. In this case, the date of marriage and date of separation (if different from data of divorce and being used as the ending date of the marriage instead of the date of the decree) must be stated in the orders. OPM does not go back and figure a second hi-3 as of the date of separation/divorce to compute this number. OPM will calculate the length of the marriage in months, the length of the career in months and divide to determine how many months the marriage and career overlapped. Prorata share will give the former spouse half of the percentage this number represents.
For example:
- John and Jane Doe married on April 19, 1994 and separated on July 3, 2009. They have agreed to use the date of separation as the marriage ending date. John began his federal career on February 2, 1990 and is planning to retire under FERS at the end of 2010 at age 61. John's High 3 Average is $65,324. John has agreed to give Jane "half of the value of the retirement" as of the date of separation and survivor benefits but does not specify the amount of the survivor benefit; the decree is silent as to who pays for the survivor benefit.
- The length of the marriage is 182 months; John's career is 250 months long (days are dropped not rounded). This means that 72.8 percent of John's career he was married to Jane. As they decided that she should get "half" of the value of the retirement for the duration of the marriage, Jane gets 36.4% of John's retirement while he is alive.
- John's FERS retirement comes out to $13,606.99 a year or $1,133.92 a month; Jane then will receive $412.74 each month for the first year. As his amount is increased by COLA over the years so will hers be unless the decree specifies no COLA to her. The monthly cost for the survivor benefit will also rise.
- Survivor benefits have a cost in retirement. Since the decree does not specify an amount (full or partial), OPM will assume a "full survivor benefit", which costs 10% of John's monthly annuity. Since John is FERS, the choices are "full" or "partial". Upon John's death, Jane will actually get an increase to 50% of his retirement. Any subsequent spouse which John may acquire before his death will become an "insurable interest" with an age-defined additional cost for her to have survivor benefits (and keep the health insurance) upon John's passing. John must specifically elect this "insurable interest" annuity for his new spouse at retirement or within 2 years from the date of marriage after retirement.
- In this example John's gross retirement check of $1,133.92 a month is reduced by the costs of the survivor benefit ($113) and Jane's portion ($412.74), leaving him only $608.18 a month before deductions for his own health benefits, life insurance, or taxes.
This is but one of the more frequently used ways a retirement can be divided. There are many other variations in the Handbook for Attorneys.
Now, on to the Thrift Savings Plan (TSP).
John had $224,875 in all his TSP funds on the July 3, 2009. As he had government service before the marriage, he should carefully watch the wording of his decree/order to insure it awards a portion of the account accrued during the marriage, not the balance as of their separation date. In order to determine this amount, he will have to contact TSP to get the value of the account on April 19, 1994. Only the difference will then be subject to division.
TSP requires a separate order to permit them to send Jane the amount awarded to her in the decree. Jane can elect to have the money moved in a taxed or non-taxed way directly with TSP. The TSP order does not have to wait for the employee to retire for the former spouse to send it to TSP and receive payment.
If the decree says "subject to gains and losses", TSP will apply G fund rates to the amount awarded rather than use the actual rate of the funds the TSP is in. If your funds have taken a big loss recently and your decree says "subject to gains and losses", you could lose more than you think from your TSP. If you have outstanding loans, be sure to decide if the indebtedness is to be split or credited to one side or the other of the ledger in your negotiations to determine the amount or percentage to be specified in your decree.
If you or your attorneys are preparing your divorce decree and orders, be sure you understand what will happen to your benefits.
Pay particular attention to any pen and ink changes that may be made when the paperwork is sent to the "other side" for signature. You should send a certified copy of the decree and all the orders relating to your retirement to the OPM Court Orders Branch shortly after everything is finalized by "trackable" mail and then hang on to all correspondence you get back in a fireproof safe or safe deposit box.
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