In a divorce, securing your financial future is a one of the top goals that many entering the process hope to achieve. It’s important to remember that it will take time in order to regain your finances, regardless of your gender.
There is a myth that men are better equip to financially recover quicker after a divorce than women, and that perception often guides many of the decisions made during the division of assets. They are interested in preserving the standard of living that the woman is accustomed to, and the man’s downgrade of living is considered to be part of the process.
The fact that the soon-to-be ex-husband’s downgrade of standard of living is considered to be just another part of the process undercuts the fairness that is supposed to exist in the legal process. It could take years for his finances to recover enough for him to relocate out of the studio apartment that he may have been forced to move to. It may take him all the way to his retirement and beyond for his account’s to replenish themselves.
For those that work for the Federal government or serve in the armed forces, one of the accounts that can find itself in the middle of the financial crossfires of divorce is a thrift savings plan.
Understanding the plan
A thrift savings plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve, according to the Federal Retirement Thrift Investment Board.
Established by the Federal Employees’ Retirement System Act of 1986, this is a defined contribution plan, which means that the retirement income you receive from your TSP account will depend on how much you (and your agency, if you are eligible to receive agency contributions) put into your account during your working years and the earnings accumulated over that time.
A TSP offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. The assets of a TSP are held in trust in the Thrift Savings Fund, which are required by law to be audited annually. This is managed by the Federal Retirement Thrift Investment Board, an independent government agency managed by five presidentially-appointed board members and an executive director who are required by law to manage the TSP in the interest of the participants and their beneficiaries.
For those covered by the Federal Employees’ Retirement System, a TSP is one part of a three part retirement package that also includes your Federal Employees’ Retirement System basic annuity and Social Security. For those covered by the Civil Service Retirement System or serve in the armed forces, a TSP is a supplement to your Civil Service Retirement System annuity or military retired pay.
Divorce and TSP
During a divorce, a valid retirement benefits court order may be issued at any stage of a divorce, annulment, or legal separation proceeding, in order to divide your TSP account, according to the Federal Retirement Thrift Investment Board. This may award your current spouse, former spouse, or dependents, a specified dollar amount. They also may award a specified portion of your account, as of a specific past or current date.
They also will require the TSP to freeze your account, stopping you from taking any loans or withdrawals until the award is paid out or the order is otherwise resolved. This freeze will not stop you from making contributions or changing your contribution allocation or investment choices. It also will require you to continue to make payments on existing loans.
Like many types of financial issues, directives regarding the event of one’s death need to be changed. This is no different for your TSP, and there is a designation of beneficiary form, that only will honor named printed on that form.
However, if you do not fill out a designation of beneficiary form, your account will be distributed according to the standard order of precedence.
Alimony and child support
There also is the possibility of garnishing a TSP account with an order, writ, summons, or other similar document, intended for the purpose of enforcing a participant’s child support or alimony obligation. This document is referred to as a legal process, according to the Federal Retirement Thrift Investment Board.
This allows individuals with an existing account to use it toward alimony or child support payments, in instances when they cannot afford them in other accounts.
With all of the accounts that one accumulates during the course of their adult life, it is important to keep track of them and what is in each of them, especially when a divorce appears to be on the horizon. For a Federal employee or a member of the armed forces, a TSP is an important part of securing one’s financial future, even after it gets divided during the divorce process.
Dan Pearce is an Online Editor for Lexicon, focusing on subjects related to the legal services of customers, Cordell & Cordell and Cordell Planning Partners. He has written countless pieces on MensDivorce.com, detailing the plight of men and fathers going through the divorce experience, as well as the issues seniors and their families experience throughout the estate planning journey on ElderCareLaw.com. Mr. Pearce has managed websites and helped create content, such as the Men’s Divorce Newsletter and the YouTube series, “Men’s Divorce Countdown.” He also has been a contributor on both the Men’s Divorce Podcast and ElderTalk with TuckerAllen.
Mr. Pearce assisted in fostering a Cordell Planning Partners practice area specific for Veterans, as they deal with the intricacies of their benefits while planning for the future. He also helped create the Cordell Planning Partners Resource Guide and the Cordell Planning Partners Guide to Alternative Residence Options, specific for seniors with questions regarding their needs and living arrangements.