The Impact of Divorce on Federal Employee Benefits and Retirement
Divorce can be a tumultuous time in anyone’s life, and for federal employees, it can bring about additional complexities concerning their federal retirement benefits and plans. Understanding how divorce affects Federal Employee Retirement System (FERS) benefits, health insurance, Thrift Savings Plan (TSP), life insurance, survivor benefits, and retirement planning is crucial for navigating this challenging period. Here, we delve into the various facets of divorce and its impact on federal employee benefits, offering insights and strategies to protect your financial future.
Understanding the FERS System in the Context of Divorce
What Happens to FERS Benefits When a Federal Employee Gets Divorced?
A divorce doesn’t directly affect your FERS (Federal Employees Retirement System) annuity. However, a court order can divide your FERS benefits, requiring you to pay your ex-spouse a portion of your earned benefit. Assets and retirement benefits could be divided in civilian divorce settlements using Qualified Domestic Relations Orders (QDRO). However, OPM (Office of Personnel Management) does not accept QDRO. For Federal employees, your benefit can only be divided by a Court Order Acceptable for Processing (COAP).
How a Court Order Acceptable for Processing (COAP) Affects FERS Annuities and Retirement Benefits
The court order can force you to provide a portion of CSRS or FERS Pension to your ex-spouse. It may even force you to provide a survivor benefit on top of the retirement benefit. Moreover, it may include clauses regarding FEHB, FEGLI, and the TSP. It is also used to address the needs of alimony or child support. When it comes to your pension, most cases will settle with the marital portion. Meaning that your former spouse’s share of the pension is only based on the time you were a federal employee while married. That means that your pension will not be affected if you had service time prior to the marriage or if you continue to serve after the divorce.
Some benefits cannot be provided. You cannot make the former spouse eligible for the Federal Long-Term Care Insurance Program. Also, they cannot force an employee to enroll in Federal Employee Dental and Vision Insurance (FEDVIP) to provide coverage. The former spouse can get FEDVIP independently if they qualify for FEHB coverage.
Navigating Federal Employee Health Benefit (FEHB) After Divorce
While a former spouse cannot be added under an employee’s family health benefit coverage, they could be covered under the Spouse Equity Provision. If the former spouse is awarded a portion of the annuity or survivor annuity by court order, they may also retain FEHB coverage in retirement. Even if they cannot access FEHB, they can still apply for Temporary Continuation of Coverage (TCC). However, the former spouse will be liable to pay the healthcare premium on their own.
Thrift Savings Plan (TSP): Dividing Retirement Assets
The divorce can have a major impact on the TSP since it can be divided with an acceptable court order and the biggest asset other federal employees have other than real estate. The typical way to divide the account may be based on the contribution and growth accumulated during marriage. The TSP will follow the court order and create a separate account for the ex-spouse. The exception would be a TSP account with contributions made before marriage since the account may be treated as separate assets.
Note that the TSP may be garnished to force payments of child and spousal support.
Federal Employee Group Life Insurance: What Divorcing Federal Employees Need to Know
Life insurance could be a big part of a divorce settlement, especially if the former spouse agrees not to take the FERS survivor benefit. However, there are many ways to obtain life insurance, and the FEGLI (Federal Employee Group Life Insurance) should NOT be used for this purpose. While using FEGLI is easy and hassle-free since you can add coverage easily without proof of insurability, it has dire consequences because the cost of FEGLI Option B (multiples of coverage) increases with age. And the cost keeps rising until it may be thousands of dollars a month. You can read more about the cost of FEGLI in our article FEGLI ABC – Federal Employee Group Life Insurance Options in Retirement
Working with a Divorce Attorney: Ensuring Your Federal Benefits are Protected
An attorney experienced in federal employee divorce cases can provide invaluable guidance in navigating the complexities of dividing benefits and protecting your financial future. Moreover, having expertise in federal benefits can help them advocate effectively for their clients and avoid pitfalls. The attorney should help you take stock of the benefits available and negotiate a comprehensive settlement.
Post-Divorce Retirement Planning for Federal Employees
It is also important for you to review your retirement and financial plan after the divorce. You may need to adjust your new income due to spousal/child support. Moreover, you may need to reassess your financial and retirement savings goals. Lastly, you should review your beneficiary designations to make sure that they are up to date.
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
Preparing for a federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
