Understanding TSP and Divorce
Federal government employees and those who serve in the armed forces can prepare for their financial future by contributing to a Thrift Savings Plan, or TSP. A TSP is a special type of retirement savings and investment plan that is similar to a 401(k). If you are going through a divorce, protecting your financial future is crucial. You may have questions about how your TSP will be impacted by your divorce. It’s important to understand TSP and divorce.
What Happens to Your TSP When You Get a Divorce?
In a divorce, assets can be divided by a court order, including a TSP. Retirement accounts are considered marital property, so in the eyes of the court, they are jointly owned property from the date of your marriage through the date of your separation.
A TSP can be divided by means of:
- A Retirement Benefits Court Order (RBCO), which can be a decree of divorce, legal separation or annulment, OR
- A property settlement agreement that is approved by the court and incident to such a decree
A TSP may not necessarily follow a court-issued qualified domestic relations order, or QDRO. QDROs generally only apply to private-sector retirement plans.
An RBCO must meet certain requirements:
- It must be issued by a U.S. court.
- It must refer explicitly to the Thrift Savings Plan. References to “government retirement benefits” will not be accepted.
- Payment can only be made to a current or former spouse or dependents.
- Payments must be specific. A TSP can only award specific percentages or dollar amounts as of the current or a past date. The order cannot require the TSP to pay more than the vested account balance.
A court order will freeze your TSP account, meaning that no withdrawals or loans can be made until the divorce is finalized. Unless excluded from the court order, any outstanding loan balances will be included in the account balance when calculating your former spouse’s award.
A separate court order will be required to permit the TSP to send your former spouse the amount awarded in the decree. The money can be sent in a taxed (a distribution) or non-taxed way (transfer to a retirement account), and the payment can be made whether or not you’re retired.
One important thing to note is that your TSP account can be garnished for outstanding child or spousal support payments. However, the court must order this through the appropriate legal process.
How is TSP Divided in Divorce?
The way in which a TSP is divided in a divorce will depend on your property settlement agreement (if you have one) or the decree/court order.
The wording in the decree is important. Does it award a portion of the total balance or the amount accumulated during marriage? If it awards a portion of the total balance (as of your date of separation), your former spouse may be entitled to a larger amount.
A spouse can be awarded up to 50% of the marital share of the TSP in a divorce. The marital share is based on the amount of time you were earning towards the pension while married.
If you’re both willing to work together and negotiate, there are many ways to handle property division. While TSP can be divided in a divorce, it doesn’t have to be. Your spouse may be entitled to a portion of it but may be willing to receive something else of equal value instead.
Here’s What You Need to Know About Your Thrift Savings Plan Before You Get a Divorce
Before you divorce, there are some important things you should know about your TSP.
The Thrift Savings Plan Booklet Provides Valuable Information
The TSP has a booklet called Court Orders and Powers of Attorney, which can be found on the TSP website. The booklet provides valuable information, including a helpful checklist and samples of language that can be used to prepare court documents. It also includes the requirements for RBCO.
Your TSP Will Follow Your Wishes Outlined on Form TSP-3
A TSP follows the wishes outlined on form TSP-3, which designates a beneficiary for the account. If you named your former spouse as your designated beneficiary, he or she will receive your account upon your death even if that isn’t your wish – and even if your ex gave up all rights to the TSP account during the divorce.
The TSP will not honor a will or a prenuptial agreement.
If you filled out a TSP-3 and named your former spouse as the designated beneficiary, it’s important to change the beneficiary if you are planning a divorce.
Divorce is never easy, even when all parties are amicable. When complicated assets are involved, like a TSP, it is important to work with a divorce attorney who understands and has experience in this department.
Get Help From An Experienced Fairfax, Virginia Divorce Lawyer
It is always in your best interest to speak with an experienced attorney as early as possible in regard to your TSP and divorce. Starting the divorce process without having a full understanding of your rights and the steps involved is an incredibly common mistake. Working together from the very beginning will give us the best opportunity to create a plan and make important decisions prior to starting proceedings.
Ready to take the first step? — Schedule a consultation today!
Frequently Asked Questions
Can my spouse get my TSP in a divorce?
Depending on the circumstances, there is the possibility that your spouse or even your children could get part of your TSP in the event of divorce. A Retirement Benefits Court Order (RBCO) can be issued saying the TSP is to be divided at any time during a divorce.
Is my spouse entitled to my TSP?
As with most retirement accounts, TSP provides rights for spouses. The amount of money that will be awarded to your spouse in a divorce will depend on your full financial picture as well as the circumstances of your divorce.
Is TSP community property?
Virginia is not a community property state. It follows equitable distribution laws to fairly divide property in a divorce. Therefore, it is important to understand that a TSP is treated the same as any other employer-sponsored retirement plan, and is subject to equitable distribution.