How Federal Benefits Can Affect Your Divorce Settlement

Most couples that divorce have their lives completely contained in the state in which they live. Their marriage, employment, and finances are all generally governed by state law. Divorce lawyers warn that this is not necessarily the case with federal employees and retirees as their employment benefits are governed by a different set of laws.

CSRS and FERS

As a federal employee or retiree, the government provides you with certain benefits through one of either two systems: the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Congress introduced the CSRS for government employees in 1920. The CSRS underwent a number of changes over the years since, and in the 1980s, it faced a number of financial challenges. The federal government eventually deemed it unsustainable.

In response to this, Congress passed the Federal Employees Retirement System Act in 1986. This introduced FERS as an alternative to CSRS. For several years, federal employees had the option to remain with CSRS or switch to FERS. All new federal employees after 1986 had to use FERS. Most federal employees and retirees getting divorced today receive benefits through FERS. In the cases where CSRS is involved instead, there are a number of notable differences to be aware of, such as:

• Higher annuities for early retirees
• Cost-of-living adjustments for early retirees
• Greater annuity percentage factors
• Bigger disability retirement payments

Federal vs. State Law Regarding Federal Benefits

Divorce agreements involving federal employee benefits must conform to applicable federal law. This is important because there are situations where state law conflicts with federal law. When that happens, federal law prevails. Consider a scenario in which a New Jersey judge gives a person 35% of their estranged spouse’s annuity payments. If those particular federal benefits limit the amount to 25%, then that is all that can be awarded. You would then have to go through steps to have the order changed.

When dealing with divorce and federal benefits, it’s very important to choose a divorce lawyer with experience in this arena. An uncontested divorce is preferable as well. This gives the couple full control over the divorce settlement. The lawyer can help ensure that the agreement meets federal standards. If an uncontested divorce is not possible, consider divorce mediation, and choose a mediator experienced with federal benefits. The most difficult path will be a judge’s decision and resulting order. That said, most judges are willing to work with representing attorneys to ensure that the order is upheld at the federal level. However you achieve it, a decree can encompass many aspects of federal benefits, including:

• Federal annuity
• Health insurance
• Life insurance
• Thrift Savings Plan account

Federal Annuity

A federal annuity is essentially the pension a federal employee receives after retiring. The annuity is only available to the employee and spouse after retirement. In some cases, New Jersey law allows access to retirement funds for an ex-spouse in advance of the official retirement. This is not possible with a federal annuity. Note also that annuity amounts are not universal. Factors that dictate the monthly payment include:

• CSRS or FERS
• Retirement age
• Job position or positions held
• Total time as a federal employee

The ex-spouse’s share can be a fixed amount or a percentage value. If a fixed amount, the amount cannot exceed the money payable minus taxes and insurance. Survivor benefits are generally no longer available after the dissolution of marriage. The federal retiree could elect to maintain it. It can also be a court-ordered benefit if the marriage lasted at least nine months. After the federal employee’s death, the maximum payable amount is 55%. As an example, if a former spouse has access to 35%, the current spouse or second ex-spouse would only have access to 20%.

Health Insurance

Federal employees and their spouses receive health benefits through the Federal Employees Health Benefits (FEHB) program. The federal government will not honor a court order that requires it to extend FEHB benefits to an ex-spouse. However, former spouses may enroll for their own FEHB benefits if they meet the requirements set forth by FEHB law. To continue with coverage, an ex-spouse must:

• Be entitled to survivor benefits
• Apply for the coverage within 60 days
• Not marry prior to age 55

Even if you are not eligible, you can continue the coverage for three years. Whether eligible or not, the ex-spouse and not the employee/retiree pays their share of the premium. If the ex-spouse marries prior to age 55, then the coverage ends on the date that the new marriage is officialized.

Life Insurance

Federal employees and their spouses get life insurance through the Federal Employees’ Group Life Insurance (FEGLI) program. It is possible for the federal employee to remain covered while transferring ownership to another person, such as a former spouse. This is generally done for personal finance reasons or to comply with a court order. A FEGLI assignment in this manner automatically cancels the beneficiary. The employee will need to assign a person again, such as the ex-spouse, and it can be the same beneficiary. A wrinkle here is that the employee is allowed by federal law to change the beneficiary at any time, so this is a detail that you will definitely want to discuss with your attorney.

FEDVIP, FLTCIP & FSAs

Former spouses are not eligible for the Federal Dental and Vision Insurance Program unless a federal employee themselves. There is no temporary continuance or individual policy available. A former spouse enrolled in the Federal Long Term Care Insurance Program at the time of the divorce can continue that coverage themselves. A divorce order can make changes to flexible spending accounts. You can also garnish federal salaries and retirement benefits for both spousal and child support.

The Thrift Savings Plan

The Thrift Savings Plan (TSP) is a retirement and investment plan provided through FERS. It offers the same type of savings and tax benefits afforded to employees by private companies through 401(k) plans. How much a TSP provides a federal retiree depends on how much the employee saved while employed. As the employee saved, the federal government matched some or all of that savings.

A court decree can award an amount from a TSP to another person, such as a former spouse. The TSP will honor all orders that comply with the board’s regulations. This includes preliminary orders, such as for the purpose of freezing the TSP while the divorce proceedings unfold. The TSP will only make a fixed payment from the plan in this manner. It cannot, for instance, be an ongoing source of income for the former spouse. After that payment is made, the TSP is unfrozen.

Legal Assistance for Divorces Involving Federal Benefits

Since 1988, the Law Offices of Kelly Berton Rocco has helped clients through the divorce process. That includes divorces involving federal benefits, which can make a divorce settlement much more difficult. If you or your spouse is a federal employee or retiree and is considering a divorce or already in the process, we can review your case. To schedule an appointment, call us at 201-343-0078, or contact us online.