In cases where a spouse is a federal employee – such as a military service member or foreign service worker – who is receiving federal benefits, certain issues may arise during and after a divorce. Alexandria family lawyer Carolyn Grimes discusses some of the most common concerns parties have when benefits are involved – including how pensions are divided and what happens to health care benefits in a divorce.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Carolyn Grimes, Family Lawyer
Named a top attorney in 2015 by Washingtonian magazine, family lawyer Carolyn Grimes is a partner at the law firm Wade Grimes Friedman Sutter and Leischner – which provides family law representation in Northern Virginia. As a mediator, she practices family law in a collaborative model. Her graduate degree in employee benefits law allows her to handle cases involving federal benefits. To learn more about Grimes and her firm, visit www.oldtownlawyers.com.
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Read the Transcript of this Podcast Below.
Carolyn Grimes on Federal Benefits in Divorce
Diana Shepherd: If one spouse is a federal employee, how is their pension divided on divorce? Is this different from an employee in a private sector?
Carolyn Grimes: Typically, federal pensions are divided by what they call the marital coverture fraction. The way the system works is that the private employer pensions are governed by the Employee Retirement Income Security Act (ERISA). The federal, state, railroad, and church pensions are all not covered by ERISA. They have their own particular statutes for the state. Typically, what happens in a divorce is that pensions, which are a retirement amount that’s paid per month when the employee actually retires, are divided by a fraction that gives the former spouse a share of the pension awarded during the marriage.
The numerator, the top part of the fraction, is the amount of time the employee was in service during the marriage. In Virginia, it’s up to the date of separation, but that may vary based on your state law. The bottom part of the fraction is the total time and service. That’s the marital share that’s typically multiplied by 50%, because typically spouses receive 50% of marital assets here in Virginia. That’s not an absolute. I’ve done it with other percentages based on other factors. That at least yields a percentage that’s then applied to the actual retirement upon the employee’s retirement — the actual pension that’s paid. If you are married to someone for 10 years of their 20 year federal career, that’s half of their career times 50%. You end up with 25% of the pension that’s paid upon actual retirement.
Are there differences in benefits between military, civilian, foreign service, and other agencies?
Carolyn Grimes: Yes. What I’ve just described is the federal civilian system. The fraction is still generally the same, but there are a couple of quirks. For the military, military members must have 20 years in service at least to receive a pension. Federal civilian employees vest in their pensions at five years. They don’t get much of a pension after five years, but they vest and they’re able to be divided. Foreign Service, you also have to have 20 years in to get a real pension, because otherwise they receive a very small one. Most people are unaware of that, and the Foreign Service has a quirk in that the governing law for the Foreign Service is the only one that contains a default where the ex-spouse gets 50% of the Foreign Service retirement unless it’s changed by a court order. Nobody else has that. Federal agencies generally follow the federal civilian retirements. There are two different systems – technically, there are three, but one of them is really dropped out – the Civil Service Retirement System and the Federal Employees Retirement System.
Everybody used to be under the Federal Employees Retirement System, old FERS as they call it. Most of those people are already retired. CSRS then came into effect. If you are under the Civil Service Retirement System, you don’t pay into Social Security when you work for the government, and you don’t get a Social Security retirement based on your time in service for the government. Those pensions are large because they actually contain Social Security benefits already.
New FERS, which started in the mid-’80s, you pay into Social Security and you also have what’s called a thrift savings plan, which is the government version of the 401(k) at a higher match than the old one. If you have a client or you are a person with a CSRS pension, that’s a huge asset that’s divisible in divorce.
Are there jurisdictional questions regarding federal benefits?
Carolyn Grimes: Jurisdictional questions vary by the type of pension it is, and also depend on the person’s residency. For civilian employees, generally if everyone lives in one state, your state will govern that. Military, in order for a state to have jurisdiction to divide a military pension – it’s a little quirky because the military member has to be a resident of the state where the divorce court is, for reasons other than his military assignment. He has to be a domiciliary of that state or he has to consent to the jurisdiction of the court. What this really means is, if you’re just in Virginia because you’re assigned to a military base here, but your actual domicilie is in Pennsylvania, Pennsylvania is where you intend to live. Residence is where you live, domiciliary is where you live and intend to remain. If you’re absent from your domicile because you’re on military assignment to Virginia, you’re a Virginia resident but a Pennsylvania domiciliary. If you don’t consent to the jurisdiction of the court, then the Virginia court cannot divide your pension.
People consent to the jurisdiction of the court by filing an answer, or asking for something. Oftentimes military members consent and they don’t realize they have because they filed an answer, or they consent because they need to get a custody order, they need to see their children, or they need support if they’re the ones. It’s a little quirky, and there are actually ways to avoid having the divorce court have jurisdiction over your pension, but it’s kind of rare to have a case that fits those fact patterns, but it is done.
The issue with Foreign Service is generally where the last place they lived. The Foreign Service is headquartered in Washington D.C. but the language training institute is in Virginia, so many Foreign Service members live in Virginia and between assignments – but not all of them. Often it’s not that rare that they’ve lived in Rhode Island, went overseas, and come back to Virginia temporarily. It’s not the same domiciliary requirement issues with the military, but they had to have lived somewhere. The last place they lived together in the US is generally – if they have to file for divorce either overseas – where you pick.
You have to make sure you have the right jurisdiction that would have personal jurisdiction over the Foreign Service member in order to divide the pension. The moving is a little tricky for the Foreign Service.
What are the issues concerning health care benefits during and after a divorce?
Carolyn Grimes: Federal employees generally have health insurance that’s available to the spouse and the children as part of the employment. While the divorce is pending, the spouse and children are still covered. Once the divorce is granted, if it’s a federal employee who has the better health insurance – and usually they do because they have great purchasing power – they are ordered to keep the health insurance on the children, but they cannot keep it on the spouse because the spouse is no longer a dependent. The ex spouse can apply for continuing health care coverage for a period of up to 3 years after the divorce, or longer is he/she receives a share of the employee’s pension. In the private sector, there opportunity tio apply for continuing healthcare coverage is called COBRA.
COBRA coverage is for continuing health care coverage for up to 36 months after divorce. This is still in effect; even with Obamacare you can still get this. The government doesn’t call it COBRA, but it’s COBRA-type coverage. You can get up to 36 months of health care coverage. You have to pay for it through the government upon divorce, but if you get a share of the federal civilian pension or a share of the federal civilian survivor benefit, you can qualify to stay in the federal health care system for life – as long as you don’t lose the pension or the survivor benefit. The difference for all of that is, it’s a cheaper rate to be in the federal health care system as a pension participant – even if you’re not drawing the pension yet – than just as a divorced spouse.
Oftentimes, even when we’re not dividing the pension between parties who have a short marriage – less than 20 years, less than 10 years – we give the divorcing spouse a dollar-a-month federal civilian pension benefit, so they can qualify to go in the health care system until and unless they get outside employment or they may just want to keep it. It’s no skin off the employee’s nose because they’re not paying anything – because they’re actually not retired — and then when they retire, they’re not going to notice a dollar a month.
Are there different requirements to obtain retirement benefits based on the type of federal service?
Carolyn Grimes: This is kind of what I was referring to before, how you have to have 20 years in to get a military pension and 20 years in to get a Foreign Service pension, whereas the federal civilian ones don’t have the 20-year requirement. In the civilian ones, you cannot draw your pension until you reach a certain age, which is different than the military and the Foreign Service. For both of them, as soon as you retire you can start drawing your pension, and you can draw a military pension at age 38 – if you went in at 18 and you have 20 years in – whereas with most federal civilian pensions, you really can’t start drawing them until you’re 60. There’s a formula: in 30 years you have to be at least 55 years of age. Most people don’t start drawing them until they’re in their 60s, because you get shorted on them if you draw them while you’re younger.
Can minor children receive survivor benefits from a federal pension if both parents are deceased? If so, how would this work?
Carolyn Grimes: There is more or less an automatic minor-child benefit if a parent dies in service and isn’t even drawing the pension yet. You can name the children in the divorce. Let’s say the husband’s the employee and the wife would be the ex-spouse. If they want to name the children as the survivor beneficial in the pension instead of the wife, they can. Typically, you don’t do that because the children generally will have aged out of consideration by that point in time, and if the wife is alive, she would trump the children. It’s rare. You can do it. It’s generally not recommended.
What is the difference between a Roth thrift savings plan and a regular thrift savings plan?
Carolyn Grimes: The thrift savings plan is basically the government 401(k). It’s money that the employee contributes some, and there’s an employer match. If you have the first pension, you have a higher employer match. CSRS pension is a lower employer match. A Roth thrift savings plan is just like a Roth IRA. With a Roth TSP, the money you contribute as an employee is after you pay taxes on it. When you retire, and draw the money out, your contributions aren’t taxed. With a regular TSP, you have a tax deduction for your contributions at the time you make them. When you take the money out, all of it is taxed. This is a fairly recent thing. They have them in the military as well. Be careful when you’re dividing, to make sure you’re doing apples and apples, and oranges and oranges, for Roth and non-Roth IRAs and TSPs.
Are there any 401(k) accounts for federal employees?
Carolyn Grimes: Strangely enough, there are 401(k) and 403(b) accounts in addition to Thrift Savings Plan accounts. The federal agencies that deal with money, like the SEC and other financial agencies also have 401(k)s and 403(b)s for their employees, in addition to potential for TSPs. If you have someone who works for a financial agency of the government, make sure you look for that. There will be a deduction for it on their pay stub, so you could possibly have 401(k) or 403(b).
Can child support or spousal support be collected directly from a federal employee by a government agency?
Carolyn Grimes: Yes. You can submit your child and spousal support order for direct income deduction through the Office of Personnel Management (OPM). Generally, it’s an income deduction order from your state court, which OPM will honor. It’ll take a little while because things grind a little slowly, but they will garnish the employee’s paycheck. If you have a spouse who’s got a thrift savings plan, and this is usually used when there’s an arrearage, you can garnish the child and spousal support from the thrift savings plan as well even if they’re not retired and drawing it. When the money comes out, they will be taxed on it because it’s a withdrawal. You will get it as nontaxable money to you, unless it’s spousal support – then you have to pay the normal spousal support taxes, but you can go through that.
The thrift savings board will honor those orders. They have a separate address; they are in Fairfax, Virginia. If you want to, google them to have your savings plan where you want to get it. Generally, arrearages for ongoing support payments go through the Office of Personnel Management, which is in Washington D.C.
Can child or spousal support be collected directly from a federal retirement benefit?
Carolyn Grimes: Yes. Same way, except if they’re retired, the garnishment order for income goes to OPM offices in Boyers, Pennsylvania, but I would send it to OPM in D.C. You can garnish retirement income with a court order for child support, spousal support, and you can garnish a thrift savings plan.
Are there issues regarding security clearances for federal employees that could be impacted by divorce, or that might arise during the divorce?
Carolyn Grimes: The typical security clearance issues result when there’s been violence between the parties. In this area there are a lot of security clearances, and depending on what the issue is, the employee has to report it. If they don’t report it, then they get in trouble on their next security clearance, and could lose their job. The issue sometimes arises if the spouse is so angry at their spouse that they call their boss, and start telling them all kinds of things.
A lot of things that happen in the marriage don’t affect security clearance, but what security clearances are usually worried about is if there’s violence, or if there is a whole lot of debt – because if they deem you’ve got a lot of debt, then you are more susceptible to being contacted by a foreign country to become a spy because you’ve got debt that you need to have paid. Those are the kind of issues they most employees within a high enough clearance have to report, that they’re going through a divorce, and have to state what is happening, and they will investigate, and sometimes the investigators contact the spouse. Be truthful, but be careful because those are federal benefits that can be lost.