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Federal benefits require specific handling during divorce

On Behalf of | Aug 17, 2017 | High Asset Divorce

Federal employees and retirees who initiate a divorce in Minnesota must give their Thrift Savings Plan retirement accounts special consideration during the property division process. No federal laws govern the division of the account balance during a marital split, but the legal documentation must meet certain criteria before a plan administrator disperses funds in a divorce settlement.

The division of a TSP needs a Retirement Benefits Court Order to proceed with a distribution. This document could be similar to a Qualified Domestic Relations Order used to divide funds from private retirement accounts, and a 31-page booklet available from the TSP website provides sample language and a list of requirements to help attorneys draft an acceptable document. At a minimum, the RBCO must contain a court decree describing the divorce, legal separation or annulment.

During the divorce process, a court order freezes the TSP account. This action prevents withdrawals and loans from the account until the conclusion of the divorce. The account balance used to calculate a distribution to a former partner generally includes outstanding loan balances unless specifically excluded. The final settlement can be expressed as either a specific dollar amount or percentage, but the amount cannot exceed fully vested funds.

State laws or a mutual agreement between the divorcing couple will determine the manner of account division. An attorney could advise a client during these negotiations and even manage conversations with the other party to limit hostile interactions. Legal representation might be especially helpful during a high-asset divorce that involves complex asset divisions and multiple retirement accounts. If the parties cannot come to terms, an attorney could litigate the divorce and strive to convince a judge to acknowledge the rights of the client.

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