TSP Division

by Mark E. Sullivan*

*Mr. Sullivan is a retired Army Reserve JAG colonel. He practices family law in Raleigh, NC and is the author of The Military Divorce Handbook (Am. Bar Assn., 3rd Ed. 2019). A Fellow of the American Academy of Matrimonial Lawyers, Mr. Sullivan has been a board-certified specialist in family law for over 30 years. He consults with lawyers nationwide on military divorce issues and in drafting military pension division orders. He can be reached at mark.sullivan@ncfamilylaw.com and at 919-832-8507.

One of the issues in military divorce cases is the division of marital or community property, and often these assets contain a Thrift Savings Plan account which needs to be handled. Should it be divided? If so, how? Should it remain with one of the parties, untouched and undivided?

The division of the TSP account can be avoided if the parties agree to leave the account with one party (e.g., “John Doe,” the servicemember or retiree). This is called a present-value setoff. The marital value of the asset would be offset by the marital value of some other asset which the spouse or former spouse, Jane Doe, would receive.

The problem is that there’s often no other asset whose value compares to the marital value of the TSP account. Thus, it might be necessary to divide the TSP account “in kind,” which means transferring a portion of John’s account to Jane. The order which is used to divide the TSP account has a special name. It’s called a Retirement Benefits Court Order, or RBCO.

Several years ago, the “plan administrator” – the Office of Personnel Management, or OPM – decided to give up the job of plan management and review of RBCO’s in favor of a private company. Accenture Federal Services took over, and it is currently the “records keeper” for TSP accounts, both those involving military members and those which belong to federal employees. As part of the deal, Accenture announced that it was going to impose a “processing fee” in all cases when an order is submitted for division of the TSP account. The fee, $600, is a one-time payment. It is debited from the TSP account as soon as Accenture is served with the RBCO, whether it’s a proposed draft (which needs to be approved) or it’s a final, certified copy of the signed and filed order.

Who pays for the $600 fee? Can the parties split it equally? Can the court order Jane Doe to pay the fee, since giving her a portion of the TSP account is for her benefit?

While it is possible for the parties to agree on who pays the fee (or whether to divide it equally or unequally), let’s assume for this article that there is no agreement on dividing the fee, and the court does not designate anything as to dividing the fee between the parties. In addition, assume that John’s TSP account has $10,000 in it, and the division of marital property with Jane is 50-50.

If the award to the former spouse says that she gets 50% of the account balance (instead of a fixed dollar amount, such as $5,000), then Accenture will first deduct $600 from the TSP account balance, leaving $9,400 remaining in the account for division. Then it will divide that remaining $9,400 by two. So, Jane would get $4700, and John would get $4700 from the TSP account. Each one winds up paying half of the $600, even though that’s not stated in the RBCO. It’s the net effect of a 50-50 percentage division.

The same math logic would apply if the division were other than equal. That is, a 60-40 division of the TSP would result in John’s paying 60% of the fee, and Jane’s covering 40%.

If the court order, on the other hand, awarded the former spouse the sum of $5,000 (which is 50% of the account balance, as discussed above), then Accenture would first subtract the $600 fee from the $10,000 account balance (leaving $9,400 as the remaining account balance, as explained above). Next, Accenture would pay Jane the designated amount ($5,000), leaving John with only $4400 (i.e., $9,400-5,000 = $4,400]. So, this means that John is paying the entire fee out of his share, ($5,000-600 = $4,400).

In the absence of a specific clause or the parties’ agreement on allocation of the $600 fee, here’s the strategy for “John Doe” –

A) Percentage division is always the better option if John is the account owner, since it divides the fee in the same ratio as the division of the TSP account.

B) A fixed-sum division is the better option if John Doe is the “former spouse” and not the account-holder, since it transfers to him the full value of the money ($5,000), unreduced by the $600 fee.

[Ending Note: For more information on the division of TSP accounts in divorce cases, see the Silent Partner infoletter, “A Teaspoon of TSP,” found at the website of the North Carolina State Bar’s military committee, www.nclamp.gov> Publications > Silent Partner.]