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Dividing your TSP as you divorce

On Behalf of | Sep 23, 2021 | Divorce

If you are a federal employee (and/or your spouse is one), you know about the Thrift Savings Plan (TSP), which is the retirement plan available to employees of the federal government. When a person with a TSP divorces, the TSP typically needs to be divided with their spouse, just as a retirement plan provided by a private employer would.

People with private-sector retirement plans generally need to have a qualified domestic relations order (QDRO), which is a court-ordered division of their plan, when they divorce. A different type of order, called a retirement benefits court order (RBCO), is used for dividing TSPs

What you need to know about an RBCO

An RBCO has just a few basic requirements. For example, payments detailed in the plan can only be to a current or former spouse or to a dependent. The payments must be designated by a specific dollar amount or percentage of the amount in the TSP. 

If you’re divorcing a spouse who has a TSP, it’s wise to get an RBCO as soon as possible, because it prevents them from withdrawing money from it.

Note that divorce doesn’t automatically change your beneficiary on your RBCO (or on just about any other asset with a beneficiary designation). If your spouse is your designated beneficiary on your RBCO, you’ll need to use a form TSP-3 to change the beneficiary for the portion of the account that you retain after the divorce.

Can you divide a TSP using a QDRO?

You may choose to do that if one of you has a retirement plan with a private employer and the other has a TSP. However, these two plans are covered by different regulations. Therefore, a QDRO can only be used to divide a TSP if it complies with Title V of the U.S. Code, which governs these plans. The Employee Retirement Income Security Act of 1974 (ERISA) regulates private retirement plans.

A couple’s combined retirement savings can easily be the largest asset they’ll divide in their divorce. It’s crucial that you get experienced guidance to ensure that it is done fairly and in compliance with the law.