For some military couples, their marital assets may include funds in a Thrift Savings Plan. But how do couples divide assets like TSP funds in a divorce? Understanding what happens to money in a TSP can help you address the complicated issues that may arise during property division in your divorce.
Understanding the Thrift Savings Plan
The federal government offers its employees access to the Thrift Savings Plan, a program equivalent to 401(k) and other private employer retirement savings plans. Federal employees, such as those covered by the Federal Employees Retirement Service or Civil Service Retirement System, members of the uniformed services, and some Congressional and judiciary employees, may participate in the TSP. Participants in the TSP may enroll in automatic payroll deductions, with the option of pre-tax contributions and tax-deferred investment earnings, or after-tax contributions and tax-free earnings at retirement.
Is the TSP Marital Property?
As with other retirement investment plans, funds in a TSP account may qualify as marital property. Contributions in a TSP and the growth in the value of investments in an account may become marital assets when they occur during a plan participant’s marriage. However, premarital contributions and growth in investments typically qualify as separate property not subject to division in divorce. As a result, when military families divorce, couples must track account balances and contributions to calculate the marital and separate portions of each account.
How to Divide a TSP in a Military Divorce
Unlike other tax-advantaged retirement accounts, such as 401(k)s, which require a qualified domestic relations order to divide the marital portion of the account, dividing a TSP account requires a retirement benefits court order (RBCO). An RBCO comes from a state court that presides over a military couple’s divorce. The order recognizes the former spouse’s right to receive a portion of the TSP account as a payee. A RBCO must meet certain requirements for the TSP to recognize the validity of the order, including:
- A court order, decree, or judgment, certified and signed by a judge or state-approved court official
- Relate to the alimony or marital property rights of a former spouse of a plan participant
- Specify the plan name as the “Thrift Savings Plan”
- Specify which account the order relates to, if the participant has multiple TSP accounts
- Specify the amount or percentage of benefits payable to the payee, the calculation date, and the payment method
- Specify an entitlement date to calculate the payee’s award based on the market value of the participant’s vested account balance
- The name, last known mailing address, and last four digits of the participant’s Social Security number or tax identification number, and the name, last known mailing address, and full SSN or TIN of the payee
Special Rules and Limitations for TSP Divisions
Division of a TSP account must follow other specific rules and limitations, including:
- A payee (former spouse) cannot elect an early withdrawal option
- Any outstanding loans on a TSP account count towards the account balance on the entitlement date
- Payments from the traditional (pre-tax contribution) portion of an account may trigger tax liabilities
- Tax-exempt balances from a service member’s TSP account cannot roll over to a former spouse’s TSP account. However, the former spouse can roll over payments into a traditional IRA, a Roth IRA, or an employer retirement plan.
Contact a Military Family Lawyer Today
Divorces in military families can create complex legal issues surrounding the division of marital assets, including retirement and savings funds. Contact Patriots Law Group today for a confidential consultation with a military family law attorney to learn more about whether couples must divide funds in a Thrift Savings Plan in divorce and discuss how our firm can help you protect your financial interests during property division when separating from your spouse.