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Impact of divorce on federal retirement

Federal employees are likely to have a Thrift Savings Plan, which replaces the common 401(k) used in the private sector. Like other retirement plans, a TSP can be affected by the asset division process of a Texas divorce. It is important for those considering a divorce to understand how the law may impact their money and finances.

Although the TSP is a federal retirement plan, asset division in a divorce is government by state laws. There are no overarching federal laws that impact what happens to a TSP in divorce. The TSP is impacted by a court order called a Retirement Benefits Court Order. These orders may be mandated by the court as part of the divorce process. This happens when the spouses cannot agree and the determination is made by the court. The order can also be included in a court-approved divorce agreement created by the spouses as part of their divorce negotiations.

One important consideration is that such a court order will freeze a TSP account until the divorce action is completed. A divorce, especially if it is a high asset divorce or litigated heavily, can drag on for months or sometimes even years before being finalized. A person will not be able to make any withdrawals from the account or take out loans against it while it is frozen.

The process of asset division determines what happens to TSP funds. A divorce agreement may award a dollar amount or a percentage of the account to the other party. A divorce attorney may be able to help a client understand how the asset division process works and how finances will be affected.

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