Getting Divorced? Here’s How It Could Affect Your Federal Benefits
Most people don’t plan to get divorced, so when it comes, it can be incredibly stressful. In addition to the emotional strain that such a change brings, divorce is also a complex legal and financial process. Dividing up your assets fairly is a huge challenge — and it can be even more difficult for federal employees.
That’s because federal employee benefits are on the line when it’s time to split assets. But these benefits are subject to different laws, which can make crafting a divorce settlement more complex. Here’s what you need to know about how divorce can impact your federal benefits.
FERS Annuities
Your pension is one of the biggest benefits of working for the federal government. This defined benefit plan guarantees income for the rest of your life once you retire from service — and as such, it’s a valuable asset to consider in any divorce settlement. Your FERS annuity can be considered in a divorce settlement, so you could end up paying a portion of this retirement income to your ex-spouse.
For an ex-spouse to receive annuity payments from FERS, it requires a court order to have the Office of Personnel Management (OPM) make these payments. The settlement can be structured as a flat sum or a percentage of your future pension payments, but the amount can’t be greater than what you will receive after taxes and other deductions.
It’s also important to note the federal law prohibits any FERS pension payments to an ex-spouse until you retire from service. This differs from laws about non-federal pensions, which allows payments to begin once the employee reaches retirement age. You must actually retire and apply for FERS benefits to trigger payments to an ex-spouse.
FERS Survivor Benefits
Another aspect of your FERS pension is the spousal death benefit. When you’re married, your spouse is entitled to 50% of your salary plus a standard payment as a lump-sum death benefit. Your spouse may also be eligible for a survivor annuity of 50% of your pension upon your death.
When you divorce, your settlement could allow for your ex-spouse to receive this death benefit or survivor annuity—and if your ex-spouse is awarded a survivor annuity in court, your future pension payments will be reduced. This situation becomes even more complex when your and/or your ex-spouse remarries. If your ex-spouse remarries before age 55, they may lose survivor benefits eligibility. If you remarry, your new spouse is potentially eligible for these survivor benefits, but only if you elect to add them to the spousal benefit within two years of your marriage.
If this sounds complicated, it’s because it is! If you are facing a divorce, you will definitely want to seek advice from both a financial advisor and a lawyer who are familiar with all the ins and outs of federal retirement benefits to make sure you are well protected.
TSP Accounts
Another important benefit impacted by divorce is the Thrift Savings Plan (TSP). Depending on how much you contribute over the years, this account can be a significant asset. It is possible to divide the money in your TSP while you are separated and before the divorce is final if you wish. With the TSP, you are also free to change the name of the beneficiary who receives the money upon your death at any time — and you are not required to notify your spouse (current or former) of this change.
Health and Life Insurance
Once your divorce is final, your ex-spouse cannot remain on your FEHB policy for health insurance. At that point, they have a 1-month grace period to either find different coverage or elect to pay for their own FEHB policy via Temporary Continuation of Coverage (TCC) procedures. TCC only allows an additional three years of coverage though, and does not apply to separate dental and vision benefits.
For FEGLI life insurance benefits, it’s important to change the beneficiary of your policy if you do not wish your ex-spouse to receive these benefits. It is also possible for your divorce settlement to require you to assign your policy to your ex-spouse. The laws around this issue can be confusing, as state laws may conflict with federal laws governing FEGLI benefits. For this reason, you’ll want to make sure you work with a lawyer who is well-versed in federal benefits as you negotiate your settlement.
The Bottom Line
Divorce is complicated, and it is even more so when you have federal benefits to divide. There’s no rule that says you must give a portion of your federal benefits to your spouse when you divorce if you can find another way to share your assets equitably. If you do end up splitting your TSP or pension, be sure to consult with legal and financial experts to male sure you understand exactly what you’re giving up — and how it may affect you in the future.
Need more advice about your federal retirement benefits? We’re here to help! Get in touch today to learn more about how we can streamline retirement planning for federal employees.
