Getting a divorce when you work for Uncle Sam can get tricky because your employment is governed by provisions in federal law. Divorce orders involving your benefits must comply with federal law and be on file with the Office of Personnel Management (OPM) before they can be processed. As a result, the TSP will not automatically follow a Qualified Domestic Relations Order (QDRO) issued by a state court.
The TSP Requires A Retirement Benefits Court Order (RBCO)
Retirement accounts like the TSP are considered a jointly-owned asset that can be divided in a divorce. However, instead of a standard QDRO, the federal government requires a document called a Retirement Benefits Court Order (RBCO). According to TSP.gov, there are four basic requirements the RBCO must meet:
- It must be issued by a court in the jurisdiction of the US (any of the 50 states, the District of Columbia, Puerto Rico, Guam, the Northern Mariana Islands or the US Virgin Islands).
- It must refer specifically to the Thrift Savings Plan. Any references to “government retirement benefits,” or even “Thrift Savings Account,” will not be accepted.
- Payments can only be made to the federal employee’s current or former spouse, or dependents.
- Payments must be specific. The 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.
“This prevents you from taking any distributions or making a TSP loan until the divorce is resolved.”
A Valid RBCO Will Freeze Your TSP Account
An RBCO is often used to prevent a TSP account holder from withdrawing all or part of their balance during divorce proceedings. Once the TSP receives a valid RBCO that complies with the basic requirements, they will freeze your TSP account. This prevents you from taking any distributions or making a TSP loan until the divorce is resolved. The only exception is taking a Required Minimum Distribution (RMD) to comply with IRS rules. However, a freeze doesn’t prevent you from making contributions to your TSP or changing your contribution allocations. Of course, you’ll still need to make payments on any existing TSP loans.
Change Your Designated Beneficiary When You Divorce
Your TSP account will always be paid to the person designated as your beneficiary. This applies even if your ex-spouse has given up all rights to your TSP account in a divorce. That’s why it’s important to always remove your ex-spouse as your designated TSP beneficiary when you divorce.
An FRC® trained advisor can put you in touch with an attorney who has experience handling divorces for federal employees.
