If you are going through a divorce and your spouse works for the federal government, their retirement benefits may be one of the most valuable assets on the table — and one of the most misunderstood. Federal retirement benefits involve a unique set of rules and must be very carefully addressed in your divorce settlement and orders. Here’s what you need to know:
The FERS Annuity Is a Marital Asset
Federal employees covered under the Federal Employees Retirement System (FERS) earn a monthly pension — called an annuity — based on their years of service and salary. The portion of that annuity earned during the marriage is considered a marital asset in Virginia. The marital share of the annuity is determined by a fraction. The numerator of the fraction is the total number of months of creditable federal service during the marriage (from the date of marriage to the date of separation), and the denominator is the total number of months of creditable service earned by the employee at retirement.
Here’s an example: Let’s say you and your spouse were married for 20 years, and your spouse has 30 years of creditable service at the time of retirement. The marital share of the annuity would be calculated as follows: 240 months divided by 360 months = 66.67%. This means that 66.67% of your spouse’s pension would be considered “marital.” As a former spouse, you could be awarded up to ½ of the marital share (or 33.33% in this example). If your spouse’s monthly pension is $5,000/month at retirement, your 33.33% share would be $1,666.50/month before any subtractions for taxes, the “cost” for the survivor benefits, etc.
Don’t worry if your federal employee spouse is not retired yet. You will still be entitled to your share of the pension when they retire – so long as your entitlement is spelled out in the divorce paperwork. OPM will complete the denominator of the marital share fraction at the time of retirement and determine your exact share.
Survivor Annuity Benefits After Divorce
If your spouse retires and later dies, you will only be entitled to continue receiving annuity payments if you were specifically awarded a former spouse survivor annuity. This does not happen automatically, and the entitlement must be set out in your divorce settlement agreement or Final Order of Divorce. It is important to understand that the survivor benefit is not “free.” There is a monthly premium (much like there is for a life insurance policy). The divorce paperwork should specify who pays that premium (it can be allocated 100% to the employee spouse, 100% to the former spouse, taken “off the top” of the pension before dividing, etc.).
The Court Order Acceptable for Processing
To divide a FERS annuity in divorce and notify OPM of your status as beneficiary of all or a portion of the survivor annuity, the court must issue what is called a Court Order Acceptable for Processing, or COAP. Think of it as the federal government’s version of a QDRO (the order used to divide private-sector retirement accounts). Without a COAP, the Office of Personnel Management (OPM) — the agency that administers FERS — will not recognize your claim to any portion of your spouse’s annuity, no matter what your Property Settlement Agreement provides.
The COAP must meet specific technical requirements set by OPM. It is strongly advisable to work with an attorney who has experience with federal employee divorce cases to make sure that your entitlement to a share of your spouse’s FERS annuity is spelled out in the underlying Property Settlement Agreement and that the COAP is drafted correctly.
The Thrift Savings Plan (TSP)
In addition to the pension, most FERS employees contribute to a Thrift Savings Plan — essentially a federal 401(k) plan. The TSP is a separate asset from the annuity and requires its own separate court order to divide. This order is called a Retirement Benefits Court Order (RBCO). The portion of the TSP that is attributable to contributions made during the marriage (both by the employee and the government) is marital and can be divided between divorcing spouses. As is the case with the FERS annuity, a former spouse’s entitlement to a share of the employee spouse’s TSP must be specifically set forth in the divorce documents.
Health Insurance: Know Your Options
As the spouse of a federal employee, you may currently be covered under the Federal Employees Health Benefits (FEHB) program. After the divorce, you may be eligible for a temporary continuation of coverage — sometimes called TCC — for up to 36 months following the divorce. This buys you time to secure your own coverage, but it is not free and must be elected promptly. Don’t wait until the last minute to explore your options. Continued coverage under FEHB after TCC ceases is also available for former spouses who have been awarded a portion (even if it is $1/month) of the federal employee’s FERS annuity and/or survivor annuity.
The Bottom Line
A federal employee’s retirement assets can be worth hundreds of thousands of dollars over a lifetime. As the non-federal spouse, you have legal rights in Virginia to a share in the marital portion of those benefits — but your entitlement must be carefully addressed in your divorce paperwork and submitted to OPM in a timely manner. To learn more about federal retirement benefits and divorce, contact the attorneys at Cooper Ginsberg Gray at www.cgglawyers.com or (703) 934-1480.
