Military Retirement / TSP

Military Retirement & Divorce: Death & Survivor Benefits

SURVIVOR’S BENEFIT PLAN (SBP)

One of the most often misunderstood aspects of military divorce is what survivor benefits are available to a former spouse under military retirement.  In the broadest terms, without a Survivor’s Benefit Plan (SBP) in place that provides for a survivorship interest that is payable to the former spouse upon the servicemember’s death, a former spouse’s military retirement payments will stop at the death of the servicemember.  You can read the statutes about the Survivor’s Benefit Plan at 10 USC §§1447-1455.

The maximum amount of the standard SBP annuity is 55% of the member’s base retired pay and will be adjusted for cost-of-living increases.  The SBP program applies automatically to a member who is married or has at least one dependent child at the time he/she becomes eligible for retired pay.  A member can elect not to participate in the SBP; however, the member’s spouse must provide written consent if the member chooses not to participate in the SBP, or chooses to provide an annuity at anything less than the maximum level, or chooses to provide an annuity for a dependent child but not for the spouse.

It is also important to note that unlike many private retirement plans, the SBP cannot be divided between a spouse and a former spouse, or between two former spouses.  This can be a major issue for servicemembers who remarry; and can be addressed through life insurance, which is discussed under the “Servicemember’s Death Before Retirement” section below.

DISABILITY & DEATH (DIC PAYMENTS)   

If a service-connected disability causes a servicemember’s death before a dissolution of marriage is finalized, the surviving spouse can receive Dependency and Indemnity Compensation (DIC) benefits.  If a person qualifies for both SBP and DIC benefits, DIC payments will be subtracted from SBP payments.  DIC payments are not available to former spouses, i.e. if the parties are already divorced at the time of the servicemember’s disability related death.

SERVICEMEMBER’S DEATH BEFORE RETIREMENT

If a servicemember dies before retiring, his/her former spouse will still be entitled to SBP only if the servicemember 1) had already become eligible to retire, 2) qualified for retired pay but had not yet applied for or been granted retired pay, or 3) had completed 20 years of service, but had not yet completed the required 10 years of active commissioned service for retirement as a commissioned officer.  If none of the above 3 conditions apply, then the former spouse may not be able to receive any military retired pay benefits.  Often, the risk of losing all future benefits is addressed by the former spouse obtaining a life insurance policy.  Parties choosing to move forward with a life insurance policy to address this risk should include language in their settlement agreement that the non-servicemember spouse is entitled to insure the life of the servicemember, and is entitled to be the beneficiary of such policy.

DIVORCED MEMBER’S DEATH AFTER RETIREMENT– TIMING ISSUES & REQUIREMENTS

The death of the servicemember after the dissolution of marriage and after retirement is the most common scenario for parties who divorce.  As mentioned above, if a member provides SBP to a former spouse, the member’s current spouse and children of the later marriage cannot be SBP beneficiaries.  An election to make a former spouse an SBP beneficiary usually cannot be revoked.

There are critical timing issues that affect electing the SBP for a former spouse.  Once any court order is entered stating that a SBP will be provided for the former spouse, the former spouse must file a written request that the SBP election be deemed made with the Service Secretary within 1 year of the date of the court order.  If the parties’ dissolution proceedings and court order(s) do not address the SBP, the former spouse can petition the court at a later date to make an order awarding SBP coverage for the former spouse, and once that court order is entered, the 1 year time period will start.  It is important to note that the 1 year time limit starts to toll upon the filing of the first court order regarding the SBP or survivor benefits; subsequent court orders will not restart the 1 year election time period.  Any elections that are submitted by the former spouse pursuant to a court order are known as “deemed elections.”

Alternatively, if the member is going to make the designation, this will be known as an “actual election.” An actual election of the former spouse as SBP beneficiary must be written and signed by the member and received by Defense Finance and Accounting Service (DFAS) within 1 year after the date of the decree of divorce, dissolution or annulment.  When making the election, the member must also submit a written statement to the appropriate Service Secretary that is 1) signed by both the member and former spouse, and 2) states whether the SBP election is being made pursuant to a court order or voluntary written agreement as part of the dissolution proceedings, and whether the agreement was incorporated in, ratified by, or approved by a court order.

SURVIVORSHIP PREMIUMS

Parties should also be aware that the premiums for providing the SBP reduce the monthly retirement benefits before each payment is made.  This results in a potentially unequal division of the premiums.  For example, if the spouse is only receiving 30% of the monthly retired pay benefit, the member pays 70% of the SBP premium.  If the parties wish to equally share the cost of the SBP premium, then they will need to adjust the percentage of benefits awarded to each party based on a calculation of benefits and premium costs.  Such a calculation is outside of the services that QDRO Helper provides, but may be achieved through the parties’ divorce attorneys or an accountant or actuary familiar with military SBP benefits.

REMARRIAGE OF FORMER SPOUSE – SUSPENSION OF BENEFITS

If the former spouse remarries before reaching age 55, his/her SBP benefits will be terminated.

DEATH OF NON-SERVICEMEMBER SPOUSE

If the servicemember’s former spouse dies before the member, the member and the member’s benefits are freed from all applicable claims, costs, and restrictions.  All SBP premium deductions will stop as soon as the military pay center is notified of the former spouse’s death.  Further, the percentage of retired pay benefits awarded to the former spouse will revert to the service member.

NEED ASSISTANCE WITH DIVIDING MILITARY RETIREMENT BENEFITS?  

Call 619-786-QDRO to start your Military Retirement Domestic Relations Order today.  You can also visit our forms page to start completing the information we will need to draft your Order.  Read more about dividing Military Retired Pay and the Ten Year Rule here.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

Divorce and Your Thrift Savings Plan (TSP)

Many federal employees and members of the uniformed services participate in the Thrift Savings Plan (TSP).  This is an asset that is subject to division during divorce, and the contributions made during the time of the marriage are considered community property in California.  The TSP is a defined contribution plan that is similar to the 401(k) plans offered by private employers.

Just like FERS and CSRS plans, ERISA does not apply to the Thrift Savings Plan, so instead of being called a QDRO, the Order dividing these benefits is called a Retirement Benefits Court Order (RBCO).  A RBCO can be utilized only for a spouse, former spouse, child or other dependent of the TSP participant.

METHODS OF DIVISION

Any award under a RBCO must be stated as either a specific dollar amount, a percentage of the account, or as a formula which accounts for contributions made during the marriage (where all variables in the formula are available on the face of the order or from TSP account records).  Usually this percentage, dollar amount, or amount arrived at by a formula are awarded as of the “valuation date.”  The valuation date is often the date of separation.  In their judgment or marital settlement agreement, the parties should also address whether earnings and losses from the valuation date to the date of actual account division should be included as part of the award to the non-participant spouse (“Alternate Payee”).

Minimum Account Balance.  It is also important to note that for an account balance of less than $3,500, the entire amount is distributed to the participant upon retirement and the Federal Retirement Thrift Investment Board cannot make any payments directly to an Alternate Payee if the account is worth less than $3,500.  If the account is below this amount, a RBCO is not appropriate and the non-participant spouse will need to seek other remedies with the assistance of his/her family law attorney.  Under California law an Alternate Payee is still entitled to his/her community interest in the account, but he/she will have to obtain it in another way, such as an equalizing payment at the time of divorce or a payment directly from the participant upon retirement.

LOANS

The treatment of any loans that are outstanding with the plan as of the date of account division is also critical when dividing a TSP account as it can have a huge effect on the amount awarded to the Alternate Payee.  When a percentage of the account is assigned to the Alternate Payee including an outstanding loan in the account balance, i.e. adding the amount of the loan back in, it will result in a larger portion for the Alternate Payee.  Subtracting or excluding the outstanding loan from the account balance will reduce the amount paid to the Alternate Payee.  Usually, the parties will evaluate when the loan was taken out by the Plan Participant and what the funds were used for to determine if the loan should be considered a community loan (included in the account) or the Participant’s own loan (excluded for the purposes of calculation).

ACCOUNT FREEZE / INJUNCTION

Due to the Participant’s ability to take out a loan before a court order dividing the account can be filed, it can be wise to file a separate order freezing the TSP account, or a preliminary injunction prohibiting loans or withdrawals.

QUESTIONS?

If you need help or have a question about dividing a TSP due to your divorce or legal separation, call 619-786-7376 to speak with one of our California QDRO attorneys today or email us at info@qdrohelper.com.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

Dividing Military Retirement – The 20/10/10 Rule

The Uniformed Services Former Spouses’ Protection Act (USFSPA) combined with state law allows California courts to distribute military retirement benefits to former spouses and provides a method for enforcement of these orders through Defense Finance and Accounting Service (DFAS).  Military retirement benefits can be divided as a marital asset and can also be used as a source of child and spousal support.  In order to use military retirement benefits for child or spousal support, a certified court order must be served on DFAS.

There are some limits on the payment of military retired pay directly to former spouses by DFAS.  For example, a former spouse can only receive payments from DFAS for up to 50% of disposable retired pay (65% if there is a garnishment in arrears for child or spousal support).  However, please note that this limitation only applies to payments made directly from DFAS, a former spouse could be awarded 100% of the military retirement benefits, but would need to collect the additional 50% directly from the retired military member.

The Ten Year Rule / The 20/10/10 Rule

Another limitation on direct payments from DFAS is commonly known as the “Ten Year Rule” or the “20/10/10 Rule”.  Essentially, in order for a former spouse to be paid by DFAS, the parties must have been married for at least 10 years during which time the service member performed at least 10 years of creditable military service.  The “20” in the 20/10/10 Rule refers to the number of years of service needed to reach retirement.  However, if the marriage overlapped military service for less than 10 years, the former spouse may still be entitled to a portion of the retirement benefits, but she/he will have to collect monthly payments from the service member, not DFAS.

It is also important to note that for purposes of the Ten Year Rule, the years of marriage is determined from the date of marriage through the date of termination of marital status, i.e. the parties’ date of dissolution.  However, in contrast, the length of marriage for determining the former spouse’s share of the benefits in California is determined from the date of marriage through the date of separation.  As an example, if the parties were married on January 1, 2000, separated on July 1, 2009, and their divorce was finalized on January 2, 2010, the service member’s former spouse would be entitled to direct payments from DFAS, even though her total property interest will be determined on a time period of January 1, 2000 through July 1, 2009, a time period of less than 10 years.

Cost-of-Living-Adjustments (COLAs) and Survivor’s Benefits

When dividing military retirement benefits, the parties should come to an agreement about whether or not the former spouse will share proportionately in cost-of-living adjustments (COLAs).  Another critical issue is that of survivor’s benefits.  For a former spouse to continue receiving payments after the death of the service member, the former spouse must be named in a Survivor’s Benefit Plan (SBP).  It is important to note that unlike many private company survivor benefits, the SBP cannot be divided between a spouse and former spouse; i.e. if the service member remarries the spouse at the time of death and a former spouse cannot both receive benefits under the SBP.  In order to ensure SBP for a former spouse, an election must be filed with the appropriate Service Secretary within 1 year of the date of the court order for divorce, dissolution or annulment.  This election will bar the service member’s future spouse from receiving SBP benefits.  If a former spouse will be named in the SBP, the parties should also determine who will pay for the premium.  In simplified terms, the premium could be paid entirely by the former spouse, entirely by the service member, or it can be equally divided between the parties.

The division of benefits earned during military service can also vary based upon participation in the Reserves or by other employment with the Federal Government leading to benefits with the Civil Service Retirement System (CSRS).  The above information applies to traditional pension benefits.  Many members of the military also participate in the Thrift Savings Plan, which can also be divided during divorce.

Additional Questions?

If you have questions about obtaining a Domestic Relations Order to divide military retirement benefits, call 619-786-QDRO to speak with a California QDRO attorney today!  You can also click here to learn more about Death and Survivor Benefits for military retirement.

DISCLAIMER: Any legal information on this blog has been prepared by QDRO Helper for informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to QDRO Helper does not create an attorney-client relationship, and none will be formed unless there is an express agreement between the firm and the individual.

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