If you work for the federal or state government, your divorce is going to be more complicated. As discussed in another blog, every asset from the marriage gets divided in a divorce. This includes retirement accounts.

Government workers have special kinds of retirement accounts. Federal workers may be FERS or TSP eligible. State workers may have a VRS plan. Either way, it is important to know that these plans are more complicated to divide.

So what makes these plans more complicated, and how are they treated in a divorce?

Types of Plans: Defined-Benefit AND

Defined-Contribution

There are several major types of retirement plans. Each type of plan is treated differently. Two of the major types of plans are defined benefit plans and defined contribution plans. For more information on the pros and cons of each type of plan, you should consult with a Certified Financial Planner or another type of financial advisor to understand what kinds of plans will work best for you in retirement.

In the divorce context, a defined contribution plan is essentially a deferral of wages. You may make contributions to the plan over an extended period of time through your wages. Your wages get placed in an account and gain interest over time. Upon retirement age, you are then eligible to start receiving the benefit of that account. A TSP would be an example of a defined contribution plan.

A defined benefit plan is essentially a pension. Your employer will pay you a pension over a certain period of time based upon your time in service and the nature of your employment. A FERS would be an example of a defined benefit plan.

How Do Retirement Accounts Get Divided in a Divorce?

FERS and TSP accounts get divided differently in divorce cases. With respect to a TSP, the Court will simply divide the amount of contributions made between the date of marriage and the date of separation. The spouse, or in this context the Alternate Payee, will receive those benefits under a Qualified Domestic Relations Order.

In contrast, a FERS account does not get paid out the same was a TSP. You cannot roll over a lump sum payment from a FERS account. Your spouse will receive a portion of your monthly benefit. The typical method of calculating the amount of monthly benefit paid directly to your spouse is handled mostly by the plan administrator. The plan administrator takes the “present value” of the account and multiples it by a fraction. That fraction is essentially the amount of time you have worked for the government during the marriage as the numerator, over the total amount of time you have worked for the government expressed as a denominator.

Why You Need a Divorce Lawyer

The division of retirement accounts is one of the most complicated aspects of divorce cases. Improperly calculating benefits can lead to thousands of dollars of lost marital assets. Plan administrators are also very particular about the preparation of the Qualified Domestic Relations Orders. You need to hire a lawyer to make sure these retirement accounts are handled correctl