Divorce is a life-changing decision to take, and your finances will take the biggest hit. The law considers the assets of both spouses to be common property, and during divorce, the assets of both partners are divided equally. Retirement plans are not exempted from this, especially if your spouse is the named beneficiary.

Just like your other assets, a TSP is divided in a divorce. That’s why it’s important to hire a good lawyer to represent you so that you don’t end up with a bad deal.

This article will focus on the TSP and how it’s impacted during divorce. Read on.

What is a TSP?

A Thrift Savings Plan is a retirement plan offered to federal employees. People can contribute a portion of their salary to this fund, and it’s similar to a 401(k). The contributions come from both the employee and the employer, and the government will match a portion of what you contribute. Employees can choose investment options like stocks and government securities.

A TSP isn’t taxed and provides a ton of savings for people. This fund is also available to some of the uniformed services and is typically withdrawn after retirement. The TSP was established by Congress in 1986 and is the equivalent of the retirement plan offered by private companies.

How is it divided during divorce?

A TSP is considered a part of your assets during a divorce and is divided between the spouses. In some cases, it may even be divided between your children as well. Factors such as the length of the marriage, the financial status of the spouses, and so on are taken into consideration when dividing assets. Because of this, assets may not be equally divided.

RBCO

In order for a TSP to be divided, an RBCO has to be issued, which is a Retirement Benefits Court Order. The TSP has to be paid to a spouse and has to be specific for it to qualify for an RBCO. The TSP doesn’t always have to be divided, and the spouses can come to an agreement to leave retirement savings out of the divorce assets.

Percentage of contribution

If you have a property agreement, it can affect how your TSP can be divided. However, it will not be affected by a prenuptial agreement or a will. The court order will outline how the TSP will be divided and mention specific percentages. The amount you contributed to the retirement fund while you were married is what is divided during divorce.

TSP-3

It’s important to note that there’s a form called TSP-3 that names a beneficiary to your plan, and if you fail to change it before getting a divorce, your spouse can get a share of the plan. (If your spouse is mentioned as a beneficiary). Whenever the money is withdrawn, it will be taxed; however, in a divorce, it can be sent over to your spouse without requiring a tax.

Conclusion

Retirement savings are an important part of financial stability that you shouldn’t ignore. With the economy as unpredictable as ever and the political situation worsening day by day, it’s important to have some kind of backup plan to support yourself. TSPs are one option for federal employees that can help you pay for your needs post-retirement.

However, if you’re considering a divorce, it could put your retirement plan in jeopardy. That’s why it’s important to understand how retirement savings are affected by divorce and how to protect them. A competent lawyer can help you handle your divorce in a manner that works out best for you, so you should definitely hire one.