About 50% of marriages end in divorce is an oft quoted statistic. So, what happens to your Thrift Savings Plan if you go through a divorce?
“A man in love is incomplete until he is married – then he’s finished.”
– Oft-married (nine times) Zsa Zsa Gabor.
Well, your TSP account can be divided by means of a court decree of divorce, annulment or legal separation; or by a court order or court-approved property settlement agreement that is incident to such a decree.
The TSP has a name for such a document; they call it a “retirement benefits court order” and we will call it a RBCO in this article.
It is important to realize that the Thrift Savings Plan will not automatically follow a “qualified domestic relations order” (QDRO) issued by a court. QDROs apply to retirement plans in the private sector.
Private sector plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA).
Government plans, including the TSP and FERS/CSRS are covered by Title V of the United States Code. A QDRO could be submitted to the TSP, but the TSP will evaluate it in accordance with Title V and the TSP’s own rules, and will not honor the QDRO if it isn’t compliant.
There are four basic requirements that a RBCO must meet:
1) It must be issued by a court of U. S. jurisdiction (i.e., a court in any of the 50 states, the District of Columbia, Puerto Rico, Guam, the Northern Mariana Islands or the U. S. Virgin Islands);
2) It must expressly relate to the TSP including to referring to the “Thrift Savings Plan”. The TSP will not accept references to “government retirement benefits” or even references to “Thrift Savings Account”;
3) Any payment must be specifically described; the TSP will only award a specific dollar amount or a percentage of the account as of a specific past or current (not future) date;
4) The order can require a payment only to the participants current or former spouse or dependents.
An RBCO can also be used to prevent a participant from withdrawing all or part of their TSP account during a divorce proceeding.
It is especially important to be aware that, for death benefit purposes, your designated beneficiary will receive your account even if you have divorced.
The TSP will follow the wishes you expressed on your form TSP-3, Designation of Beneficiary, or, if no beneficiary has been designated, the standard order of precedence for federal benefits.
If your former spouse is the designated beneficiary on your TSP-3, they will receive your account upon your death even if you wouldn’t have wanted them to, or even if they had given up all rights to your TSP account as part of the divorce.
Regarding any outstanding TSP loans, the account balance used for calculating a court-ordered award will include the balance of any outstanding loan unless the court order specifically provides otherwise.
See: Divorce and Federal Employee Benefits for a deeper dive covering all your benefits in the event of a divorce.
There is a lot more arcana on divorce and other items in the TSP’s booklet Court Orders and Powers of Attorney which can be found in the forms and publications section of the TSP website. If you, or your attorney, refer to this publication, be aware that it was last updated in September of 2014, before the TSP Modernization Act was even introduced in Congress, so some of the wording on proportionality is not up-to-date.