Board Certified Family Law Specialist Matt Arnold answers the question: ” I’m considering separating from my spouse; what actions should I refrain from doing?”
Divorce can impact a number of aspects of your life. Though most people understand that it will lead to changes in housing, your household budget, possession of certain items of personal property and the division of bank accounts, many may not be thinking about the impact divorce can and does have on retirement. To learn more about the impact divorce has on Thrift Savings Plans, known as TSPs, keep reading.
First off, for those who may not know, what is a TSP? A TSP is a retirement savings plan that exists for federal employees. The TSP was first introduced back in 1986 and is known as a defined-contribution plan. The aim is function much like a 401(k), a way of giving federal employees a means for saving for retirement similar to those employees in the private sector.
When it comes to retirement plans like a TSP, how are these divided? Is there some kind of automatic rule in place? No. Retirement plans, including TSPs, are not regulated by some kind of governing law that explains in advance how they will be divided in the event of divorce. This division is typically decided on the basis of negotiation between the parties. Any number of possibilities is acceptable, including one party walking away with everything (though that is less likely, retirement plans are usually split between the parties). Either the couple is able to work out a solution amongst themselves, or a court will step in and decide based on local law what kind of division of assets is equitable.
When a divorce is underway, a court order can be issued to freeze your TSP account. What’s the point of the freeze? To keep the money inside the account from being wasted. The court order will prevent withdrawals or loans being made against the value of the account until the divorce is finalized. This ensures that the spouse holding the account isn’t able to deplete resources that are meant to be divided between the couple.
How are TSPs divided? Like other retirement plans, a TSP can only be split with the help of a court order. These are referred to as Retirement Benefits Court Order (RBCO). It’s common to rely on a QDRO (Qualified Domestic Relations Order) to divide other kinds of retirement accounts like a 401(k). QDROs can also qualify as RBCOs in certain cases, though that will depend on they way they are drafted. To ensure that these RBCOs are done properly, the Thrift Savings Plan has a booklet specifically about the issue, with dozens of pages of advice explaining to you (or, more likely) your attorney how to prepare a proper RBCO that meets with the administrator’s approval.
The RBCO will go into sometimes painful detail explaining precisely how the value of the account is to be divided between the parties to the divorce. The order can specify that a certain sum of money must be split off and placed into a separate retirement account or instead that a fixed percentage should be used when dividing the TSP. If there are any outstanding loans against the TSP account, these will generally be factored into the balance before the account is divided, though you can change this if you and your spouse reach a different agreement.
What is an important issue to look out for when dividing TSPs? The date that the balance is of the account is calculated from which determines how much is subject to division. If you were a government employee for 10 years prior to marriage, stay married for another 10 years before filing divorce, it’s easy to draft a RBCO that says the account should be divided in half. If you do, you’re making a big mistake. You need to be careful to insure that the wording of the RBCO only includes the portion of the account that was accrued during the course of the marriage. If not, you will end up paying your former spouse a share of your hard-earned retirement that would ordinarily be deemed your separate, rather than marital, property.
If you find yourself facing a complicated family law matter, then you need the help of experienced family-law attorneys in Charlotte, North Carolina who can help guide you through the often confusing process of divorce. Please contact Arnold & Smith, PLLC today at (704) 370-2828 or find additional resources here.
About the Author:
Matthew Arnold is a Managing Member of Arnold & Smith, PLLC, where he focuses on the areas of family law, divorce, child custody, child support, alimony and equitable distribution.
Mr. Arnold was raised in Charlotte, where he graduated from Providence Senior High School. He attended Belmont Abbey College, where he graduated cum laude, before attending law school at the University of North Carolina at Chapel Hill on a full academic scholarship.
A certified Family-Law Specialist, Mr. Arnold is admitted to practice in all state and administrative courts in North Carolina, before the United States District Court for the Western District of North Carolina, and before the Fourth Circuit Court of Appeals in Richmond, Virginia.
In his free time, Mr. Arnold enjoys golfing and spending time with his wife and three children.
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