Divorce is an emotionally challenging and stressful life event for anyone.  However, federal employees face their own unique set of challenges which must be addressed.- Brian Swerdlow

By Brian Swerdlow

From understanding the long-term effects on their retirement to navigating the division of benefits, federal employees going through divorce or separation must confront some tricky challenges.

If you are a federal employee facing divorce or separation, you must take time to educate yourself on your benefits and how they will be impacted when the final divorce decree is issued.  Keep in mind that in many cases, your government benefits will be the most substantial part of the financial considerations of your divorce.

As you might guess, divorce can be especially complicated for federal employees and retirees.  That’s because, to some degree, federal law conflicts with state law.  When such conflicts occur, federal law takes precedence over state orders.

For example, state orders connected to your divorce or separation might divide your annuity, split any refund of retirement contributions made if you leave service before retirement, allow an ex-spouse to remain on your health insurance, or require you to take specific distributions from your TSP.

However, federal employment is subject to government “spouse equity” provisions.  In many cases, state court orders typically used to divide private pension plans (domestic relations orders) will not be valid under CSRS or FERS.  State court orders also don’t affect several government benefits.  One example is that under the private sector’s Employee Retirement Income Security Act (ERISA) a former spouse’s share of a retirement benefit may begin when that employee reaches minimum retirement age, even if they are still working.   This is not the case under CSRS or FERS because court orders cannot affect any retirement benefits until those benefits are actually payable.

What steps should government employees take to lessen divorce’s impact?

Divorce can be one of your most painful and financially devastating life events.  But, there are preliminary steps you can take to mitigate some of the adverse consequences.  If you are about to get a divorce or legal separation, you should:

1. Take a deep dive into your government benefits. Meet with a financial advisor who specializes in federal benefits. These specially-trained experts have the tools, skill sets, and experience to educate you on the many nuances of your benefits package.    Your federal benefits specialist can be a critical member of your financial team, perhaps working with your lawyer in the negotiation process.
2. Find and organize all financial papers, receipts, contracts, insurance policies and other vital documents. Make copies of everything and store them on a thumb drive or other safe place.
3. Make a list of outstanding debts, including mortgages and credit card bills. Include as much information as possible, including balances, current interest rate, and dates the accounts were opened. Getting a copy of your credit report could be helpful in putting this together.
4. Close all joint accounts. Unfortunately, what started off as a friendly divorce can quickly go south. We’ve all heard of divorces where one or both spouses deliberately maxed out credit cards, took expensive trips, or emptied checking accounts.
5. Meet with your accountant. An accountant can be extremely helpful when it comes to sorting out the tax implications of your divorce.
6. Document temporary spousal payments. If you’ve made any temporary alimony payments be sure to keep good records. If you had a written agreement or court order, these temporary alimony payments could be tax deductible.
7. Conduct a thorough financial fact-finder. Go through your finances with a fine-tooth comb to produce a document listing all present and future obligations, retirement accounts, savings accounts, physical and digital assets, insurance and annuities, and all other money-related data. Scan and keep paper receipts.  Write down all your online account user names and passwords and screenshot current statements.  The more thorough you are with this procedure, the easier it is for your attorney, financial advisor, and tax expert to provide guidance.  Also, documentation could potentially stave off future disagreements and enhance your ability to negotiate with your former spouse.
8. Don’t forget “FEGLI” Option B. If you participate in FEGLI with Option B, you must be aware that this benefit could become a lot more expensive after retirement, if you don’t select a reduction. The cost of FEGLI starts increasing at age 65, whether or not you’ve retired.  Premiums continue to increase, since they are adjusted for age.    In a divorce, this could spell trouble if a court order decrees that you must keep FEGLI death benefits for your ex-spouse.  In this case you will be required by law to keep your FEGLI B in force forever and your premiums will become astronomical as you age.  Fortunately, there are other options to help you avoid this situation.  Make an appointment with your federal benefits advisor to discuss them as soon as you can.

Summary:

There are many aspects to divorce, particularly for government employees.  I’ve only touched on a few of the more common ones.  Divorce doesn’t come with hard and fast rules or standardized procedures. Instead, you’ll need to do a thorough written evaluation of your finances so you won’t make costly mistakes and will be better positioned to negotiate.For federal employees, a wise course of action is to find a qualified financial expert who understands federal benefits and can explain your options clearly.

Calculate your federal benefits the easy way… for Free.