STWS Advisor David Fei lays out why divorce can impact a Federal Employee’s benefits
Everything is Negotiable
That is the largest takeaway a Federal Employee should get when looking at the impact of a divorce on their Federal Benefits. From Survivor Benefits to Healthcare Coverage to what percentage of the Federal Worker’s pension and TSP amounts are given to their ex-spouse- it’s all up for bargaining before being finalized in the final divorce decree.
If Survivor Benefits are granted to a former spouse in the court order, even if the Fed remarries, when he or she passes away, the benefits go first to the ex-spouse with the overriding court order. If the ex-spouse does get entitlement to either a portion of the federal worker’s pension, or any part of the survivor benefits, then they are also eligible for FEHB coverage under the Spouse Equity Law. (FEDVIP coverage cannot be kept by a non-fed after their divorce from a federal employee.) If a long-term care policy was purchased during the marriage, the policies can be kept by both parties after finalizing the divorce.
The biggest items that are up for negotiation, however, are the TSP and the CSRS or FERS pension. Any percentage stipulated in the court order is allowable (from 0 to 100%) for both pots of retirement money. The TSP funds will either be divided in the separation process, or (for those under FERS) the ex-spouse will receive a low-interest annuity. The latter is the least popular choice. As for either the CSRS or FERS pension, the ex-spouse would be entitled to withdraw his or her percentage when the Federal Employee reaches retirement age- not when the federal worker retires from service.
Beware of FEGLI B
FEGLI option B has the potential to become dramatically more expensive after retirement. Especially if no reduction is selected, the premium paid by the federal retiree is the same as rates paid by active employees- but adjusted for age. The cost increases begin at age 65, whether you’re retired or not, and they keep going up. What does this have to do with divorce? Well, if the court order decrees that the federal employee must keep FEGLI death benefits for their ex-spouse, they will also be required by law to hang on to their FELGI B… forever. The premium price will soar to astronomical heights as the Fed lives further into retirement.
Mind the Gap
Age gaps are another thing to consider when a federal worker is separating from their spouse. If the non-fed partner is younger and still working, the federal retiree will get a reduced pension until their younger ex-spouse also retires. Naturally, the larger the age gap, the bigger of an issue this becomes.
These were just some pitfalls to keep a lookout for during the divorce process. For more, read Ed Zurndorfer’s Complete Divorce Guide for Federal Employees.
**Written by David Fei, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.**