Impact on Thrift Savings Plan Accounts
A TSP account can be divided by a court decree of divorce, annulment, or legal separation, or a court order or court-approved property settlement agreement incident to such a decree. A court order may be issued at any stage of a divorce, annulment, or legal separation proceeding. The TSP calls such a document a “retirement benefits court order” (court order).
A TSP account also can be garnisheed with a writ, order, summons, or other similar document in the nature of a garnishment that is brought to enforce a participant’s child support or alimony obligation. The TSP calls such a document a “legal process.”
The TSP will review only a complete copy of a court order or legal process. To be complete, a court order must contain all pages and attachments. It also must provide (or be accompanied by a document that provides):
• the participant’s Social Security number;
• the name and address of each payee;
• if the current or former spouse of the participant is a payee, the SSN of the spouse-payee (if it requires the payment to be mailed in care of a third party, it must also provide the state of legal residence of the spouse-payee); and
• if it is written in a language other than English, a certified English language translation of the entire court order.
A qualifying retirement benefits court order or a legal process for the TSP must meet these requirements:
• It must be issued by a court in any of the 50 United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the Virgin Islands, or by any Indian court.
• It must expressly relate to the TSP. This means that it must specifically contain the name “Thrift Savings Plan.” Terms such as “all retirement benefits,” “government benefits,” “federal retirement benefits,” “thrift savings,” or “thrift savings account” are not adequate.
• If it requires a payment from a TSP account, it must clearly describe the payee’s entitlement. For example, it can award a specified dollar amount or a fraction or a percentage of the participant’s account as of a specific past or current date. If the court order describes the payee’s entitlement by using a formula, all of the variables in the formula must be included in the court order or be available from TSP records.
• It can require a payment only to the participant’s current or former spouse or to the participant’s dependents. The TSP will not honor a court order asking for a single payment to be made jointly (for example, $10,000 to be divided among the former spouse and dependents). The court order must separately specify the amount of the award made to each person.
Account information requests relating to the TSP must be submitted to the TSP Service Office, P.O. Box 385021, Birmingham, AL 35238, phone from the United States and Canada toll-free (877) 968-3778, TDD (877) 847-4385; other callers (404) 233-4400.
To assist a spouse in developing a valid court order, the TSP will provide the spouse (and the spouse’s attorney), upon written request, with TSP account information such as the participant’s (or beneficiary participant’s) account balance; the outstanding loan balance, if any; and annual or quarterly statements. A subpoena is not required. The TSP will not provide personal information such as a residential address.
Requests must be made in writing to the TSP Legal Processing Unit, P.O. Box 4390, Fairfax, VA 22038-4390; fax (703) 592-0151; overnight delivery: TSP Legal Processing Unit, 12210 Fairfax Town Center, Unit 906, Fairfax, VA 22033. Requests should provide the participant’s (or beneficiary participant’s) name and TSP account number (or Social Security number); identify the individual requesting the information and describe his or her relationship to the participant; describe the information needed; and state the purpose for which the information is being requested.
Court orders and legal processes also should be submitted to the Legal Processing Unit. Since the TSP maintains separate accounts for civilian, uniformed services, and beneficiary participants, if a participant has more than one type of TSP account, court orders and legal processes must identify each account separately. The terms “civilian,” “uniformed services,” and/or “beneficiary participant” must be used.
Divorce, Separation, or Annulment Decrees
A court order can be used to prevent a participant from withdrawing his or her TSP account during a divorce action. As soon as practical after receiving a court order that is issued in an action for divorce, annulment, or legal separation, the TSP will “freeze” a participant’s account if:
• the court order names the TSP and provides that the participant may not obtain a TSP loan or withdrawal; or
• the court order purports to divide a participant’s TSP account.
Once an account is frozen, no new loans or withdrawals are permitted from the account until the action is resolved. All other account activity will be permitted, including investment decisions and payments on existing loans.
The freeze will be removed from the participant’s TSP account as follows:
• If the account was frozen upon receipt of an incomplete court order, the freeze will be removed if a complete copy of the order is not received within 30 days of the TSP’s written request for a complete copy.
• If the account was frozen in response to a court order issued to preserve the status quo, the freeze will be removed when the TSP receives a court order that removes the freeze, or when the TSP receives a court order that purports to require a payment from the TSP.
• If the account was frozen in response to an order that purports to require a payment from the TSP, or in response to a freeze order, the freeze will be removed as follows:
-If the court order requires a payment from the TSP, the freeze will be removed after the payment is made.
-If the court order is not qualifying, the account will remain frozen for 45 days from the date on which the TSP informs the parties in writing that the order does not qualify. The freeze will be removed sooner if the TSP receives a written agreement—signed by both of the parties involved in the divorce proceeding—that it may be removed.
Child Support or Alimony Decrees
A legal process to enforce a participant’s child support or alimony obligation must be complete and must meet legal requirements paralleling those described above for divorce, separation or annulment decrees.
A participant who is liable for alimony or child support can be prevented from withdrawing his or her TSP account. The participant’s account will be frozen as soon as practicable after the TSP receives a legal process that:
• expressly names the TSP; and
• either requires a payment from the TSP to satisfy a child support or alimony debt or requires the TSP to withhold a portion of the participant’s account in anticipation of an order to make such a payment.
If the participant’s account was frozen upon the TSP’s receipt of a complete document purporting to be a qualifying legal process:
• If the legal process requires a payment from the TSP, the freeze will be removed after the payment is made.
• If the legal process does not qualify to require a payment from the TSP, the freeze will be removed as soon as practical after the TSP informs the parties in writing that the document is not a qualifying legal process.
Some states allow a two-step garnishment process. The first step consists of an order to withhold, which freezes the debtor’s assets. The second step consists of an order to deliver, which requires the recipient to pay a specified amount of the debtor’s assets to a third party.
If the account was frozen upon receipt of an order to withhold, the freeze will be removed:
• upon receipt of an order removing the freeze;
• after payment pursuant to a qualifying order to deliver; or
• after the TSP informs the parties in writing that an order to deliver does not require a payment from the TSP.
The TSP and the Health and Human Services Department’s Office of Child Support Enforcement share data to facilitate collection from TSP accounts of delinquent child support payments.
Calculating the Amount of Entitlement
Court Order—If a court order awards a percentage or fraction of a TSP account as of a specific day, the payee’s entitlement is determined based on that day’s account balance. If a court order awards a percentage or fraction of a TSP account and does not specify a date for calculating the award, the payee’s entitlement is determined based on the effective date of the order. If a court order awards a fixed dollar amount, the payee’s entitlement is that dollar amount.
If a court order describes a payee’s entitlement as a fixed dollar amount and as a percentage or fraction of the account, the payee’s entitlement is the specified dollar amount, even if the percentage or fraction, when applied against the account balance, yields a different result.
A court order cannot require the TSP to pay more than the participant’s vested account balance. Therefore, if the payee’s entitlement exceeds the participant’s vested account balance when the TSP pays the award, the TSP will only pay the vested account balance.
Legal Process—Because a legal process can only award a specific dollar amount, the payee’s entitlement is determined based on the participant’s vested account balance at the time of payment.
The tax treatment of a payment made under a qualifying court order or legal process depends on the type of money invested into the TSP account. A TSP account may consist of a traditional balance, a Roth balance, or both. See Chapter 6, Section 1.
If a payment is made to the current or former spouse of the participant, the taxable portion of the payment is reported to the Internal Revenue Service as gross income for the recipient spouse for the tax year in which the payment is made, unless the funds are transferred as described below. This is the case even if the payment is intended to satisfy child or spousal support arrears.
If the payment is made to someone other than the current or former spouse of the participant (for example, a support enforcement agency), the taxable portion of the payment is reported to the IRS as gross income for the participant for the tax year in which the payment is made.
A payment in response to a retirement benefits court order or legal process is not subject to an early withdrawal penalty tax.
All or part of a payment to a current or former spouse under a court order or legal process may be transferred to a traditional IRA, a Roth IRA, or an eligible employer plan (note: this option does not apply to court-ordered payments made from beneficiary participant accounts). Current or former spouses asking the TSP to make such a transfer must use the TSP forms provided with the TSP decision letter; the TSP will not accept transfer forms developed by financial institutions. The financial institution to which the payment is being transferred must complete the relevant section of the appropriate TSP form. The TSP will not honor payment information, financial institution information, or payment elections submitted in the form of a cover letter or embedded within a court order document.
The TSP tax notice Tax Treatment of Thrift Savings Plan Payments Made Under Qualifying Orders is available at www.tsp.gov/forms/legalDocuments.shtml, from agency personnel offices, and from the TSP Service Office (see General, above, for contact information).