Unlike many of those in the private workforce, employment for federal employees is governed by federal laws. As a result, any divorce orders that affect your benefits must comply with these laws. It’s important to have an understanding of the documents you’re required to file with the Office of Personnel Management (OPM).
Retirement accounts like your TSP are considered to be jointly owned assets. The division of these accounts is usually established through a Qualified Domestic Relations Order (QDRO), a court decree that mandates how assets in a retirement plan or pension fund will be split in a divorce. However, the TSP will not automatically follow a QDRO issued by a state court.
Instead of a standard QDRO, the federal government requires a special 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. The order cannot require the TSP to pay more than the vested account balance.
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.
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 RBCO (Retirement Benefits Court Order) is commonly used to prevent a TSP (Thrift Savings Plan) account holder from withdrawing any or all of their balance during divorce proceedings. Once the TSP receives a valid RBCO that meets the required criteria, your TSP account will be frozen. This means you won’t be able to take any distributions or apply for a TSP loan until the divorce is finalized. The only exception is if you need to take a Required Minimum Distribution (RMD) in accordance with IRS regulations. Despite the freeze, you can still make contributions to your TSP and adjust your contribution allocations. Keep in mind, any existing TSP loans will still require regular payments.
Your TSP account will always be distributed to the beneficiary you have designated, regardless of whether your ex-spouse has relinquished all claims to the account in the divorce. Therefore, it is crucial to update your beneficiary designation and remove your ex-spouse as the beneficiary following a divorce.
