Retirement Planning
July 26, 2023

How Is a Thrift Savings Plan Affected by Divorce?

Stewart Willis

Divorce can be an unpredictable journey, especially when dividing marital assets. It's common to have to divide or distribute complex financial products, such as a Thrift Savings Plan (TSP). That can make things even more contentious.


Understanding how your state's laws can impact your Thrift Savings Plan during a divorce is important. This will ensure you are adequately prepared to have the best chance of a successful outcome in terms of your assets.

What are Thrift Savings Plans?

Thrift saving plans are employee-defined contribution plans for federal employees. Thrift savings plan matching allows up to five percent matching contributions if you contribute at least 5% of your salary.

Community Property Laws: The Impact on Thrift Savings Plans and Divorce

Arizona and Nevada are classed as community property states. That usually means all assets and debts attained during the marriage are typically owned by both spouses. There is no way to completely protect a Thrift Savings Plan during divorce from community property laws. 

However, a prenuptial agreement could help establish pre-marital assets. This includes pre-marriage contributions to retirement accounts, like a Thrift Savings Plan. 

When a married couple gets divorced, the contributions made to the Thrift Savings Plan during the marriage are split. A partner may receive up to 50% of a Thrift Savings Plan during a divorce.

If you had a TSP account before marriage, you could protect contributions made during that time. The contributions made from the start of the marriage to the official separation date are considered community property.

Man in suit separating two stacks of coins

Splitting Assets: Retirement Benefits Court Orders

There are often court-ordered decisions about splitting up retirement benefits, like a Thrift Savings Plan, during divorce proceedings. A court order must be followed in the transition of accounts to comply with Thrift Savings Plan regulations. 

To be considered a "qualifying order", this particular order must meet the exact requirements of the Thrift Savings Plan. The order must specify that it is applied to a Thrift Savings Plan. This payment designation only applies to a spouse, former spouse, or dependent. Moreover, the payment amount and date must be specified in precise figures or percentages.

Splitting assets is not always straightforward for a Thrift Savings Plan during a divorce. A Qualified Domestic Relations Order (QDRO) is used with private retirement accounts to help establish the specific division of assets. Retirement Benefits Court Orders (RBCO) refer to court orders that apply to federal government retirement plans.

RBCOs can be issued anytime during a divorce, annulment, or separation. They can also affect Thrift Savings Plan withdrawals during separation. Once an RBCO is issued, the court must process it to verify its validity. In the meantime, your Thrift Savings Plan will be frozen. 

This means you won't be able to withdraw from your Thrift Savings Plan until the matter is resolved. However, you can continue to contribute to it. Any loan amounts are added to the account balance to calculate the former spouse's award unless precluded by a court order.

Find a Fiduciary to Help with Splitting Your Thrift Savings Plan During Divorce

Having a financial advisor or tax accountant by your side when splitting a Thrift Savings Plan during divorce can be invaluable. They can help you create the right financial plan of action and guide you through the complex process with ease. You should seek a fiduciary with access to tax resources, so you can understand the tax implications of asset division.

Tax Implications when Splitting Assets

When you are working with divorce attorneys, they may only consider the value of an asset without considering the tax consequences. To them, a Roth Thrift Savings Plan and a 401k, each valued at $170,000, are the same.

However, a financial advisor with a tax background would look at this differently. After-tax dollars fund the Roth Thrift Savings Plan, and the owner can enjoy tax-free withdrawals. The 401k is funded by pre-tax money, and the owner must pay taxes on withdrawals later. This makes the Roth Thrift Savings Plan much more valuable to the owner.

Establishing a Post-Divorce Retirement Plan

Asset Preservation can help you adjust your financial plan to accommodate your new circumstances. Whether that's setting up new retirement accounts, consolidating debt, or splitting assets favorably. With our expertise, we can help you develop a post-divorce plan that is tailored to your needs and goals.

You may only lose a little from your Thrift Savings Plan during divorce if you were married for two years. On the other hand, after a 20-year marriage, you could risk a large part of your retirement savings. That is why it’s crucial to have the proper legal, financial, and tax guidance

We can assist in forming an optimal strategy that limits tax liabilities and enhances your financial standing after a divorce. 

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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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