Navigating Pensions During Divorce for Federal Employees

By Leah Jones on April 28, 2021

Going through a divorce is complex in even the most basic of situations but if one or both parties are federal employees, it can become even more complex. In a recent episode of Everything Money, Hightower Bethesda’s Director of Financial Planning Leah Jones sat down with Jessica Markham, managing principal of Markham Law Firm based in Bethesda, Maryland to discuss some of the nuances present when navigating divorce of federal employees.

Here are some of the top issues that can arise when navigating this type of divorce.

Health insurance

For most federal employees, their most significant benefit is the pension, and there are two types of pensions: the federal employee retirement system (FERS), which is the most common, and the CSRS, which is the old federal pension system that was terminated in the early 1980s. Each pension has a few features that are important to cover when going through a divorce, one being health insurance.

It’s important to know in the context of government health insurance that there are two types of monthly payouts that a federal employee’s spouse can receive: employee annuity (most commonly referred to as the pension), which is based on the employee’s salary and length of service, and survivor annuity, which is a monthly amount paid to a spouse or former spouse if the employee dies first. Under most local laws the employee annuity is considered marital property, therefore an ex-spouse in entitled to a portion.

This is when the health insurance option comes in. If you are a divorced spouse of a federal employee and receive a portion of the monthly pension amount and the survivor benefit of over $1 per month, you can remain on government health insurance for the rest of your life. The government does not pay the premium but in many cases, the options are less expensive than private health insurance.

Length of marriage

With many issues surrounding divorce, the length of the marriage usually matters. In some states, the law says that if you’ve been married for 20 or more years, you automatically have to split assets 50/50. But when it comes to federal pensions, the length of the marriage doesn’t matter as much.

Government employees are fully vested in their pension at five years, but even if the federal employee is not fully vested, the pension could still be considered marital property. There are some cases where a couple is married for only a few years but still decide to split a pension in half – especially if the couple is young and doesn’t want to go through as many legal hoops.

Survivor benefits

When negotiating survivor benefits, it is seen in most jurisdictions as marital property. Generally speaking, for federal government employees on FERS, the most you can decide to give your spouse for the survivor benefit is 50% of your pension. There is, however, a fee associated with the survivor benefit that is calculated using a formula – this is often overlooked during a divorce. During negotiations, it will need to be established who is paying that fee and if it will come directly from the survivor benefit payment or not. Whatever you decide needs to be stated in the divorce settlement.

Remarriage

Discussions around remarriage restrictions when it comes to federal employee pensions are often not addressed. It should be noted that remarriage restrictions are slightly different for federal employees who are part of FERS, CSRS, foreign service, military. If you are under one of these pension plans or are the spouse of someone under one of these plans, it’s important to look up the specific restrictions in place.

For example, if you are the ex-spouse of federal employee and you get remarried before age 55, you can lose your survivor benefit if you hadn’t been married to your ex for at least 30 years. If you are the ex-spouse of someone from foreign service and are remarried before age 55, you can lose the pension AND the survivor benefit. There are also some cases where you could be remarried, lose the pension benefits, but then have them restored if your ex-spouse dies. That is why it’s vital to find a divorce attorney who is familiar with your specific situation and rules around remarriage.

These topics only begin to scratch the surface when it comes to navigating divorce among federal employees. For a more comprehensive resource on this important topic is the book, Jessica Markham published titled “Representing Federal Employees & Their Spouses In Divorce”.   To listen to the full conversation between Leah and Jessica click here, and if you are going through a divorce and have a pension involved, don’t hesitate to reach out to Leah to set up an introductory meeting.

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