Divorce Considerations for Government Contractors

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June 4, 2024Author: Grant Moher, Esq.

Divorce Considerations for Government Contractors

Unique Divorce Challenges for Federal Contractors and Workers

For government contractors working on sensitive projects in the D.C./Northern Virginia region, going through a divorce can create a uniquely complex situation. While divorce is difficult for anyone, those supporting crucial national security and federal initiatives must navigate an array of special considerations concerning clearances, intellectual property, non-competes, and more.

This guide will offer a comprehensive look at key divorce factors for government contractors to be aware of during this transition. We’ll also briefly touch on some of the specific issues that federal employees themselves may face when divorcing.

Navigating Security Clearance Impacts of Divorce 

Maintaining an active security clearance is an essential job requirement for many contractors working on classified government programs and projects. During a divorce, various aspects of one’s clearance status will likely be reviewed and scrutinized.

Financial Scrutiny

One of the central areas that is evaluated during periodic clearance reinvestigations is an individual’s financial situation, looking for any potential vulnerabilities like overwhelming debt that could create leverage for bribery, coercion or exploitation.

The financial complexities that can accompany a divorce, like asset splits, alimony payments, and responsibility for joint debts and obligations, can come under substantial review. Having a reasonable post-divorce financial plan and avoiding escalating money troubles is critical for contractors hoping to maintain clearance.

Foreign Ties and Outside Influence

For many classified government programs, another factor that is assessed for security purposes is exposure to foreign influence or leverage. If a contractor is divorcing a non-U.S. citizen spouse, particularly one from a hostile or adversarial nation, it will likely receive enhanced scrutiny over concerns about outside pressures or coercion.

Being transparent about the situation, documenting that no concerning foreign influence exists, and taking proactive steps to mitigate potential risks is very important. Certain contracts may even impose specific requirements for reporting a divorce in this scenario.

Need to Know and Operational Security 

During divorce proceedings, contractors must also be vigilant about protecting classified information, operations, and program details that are restricted on a strict need-to-know basis. Anything falling under this operational security umbrella cannot be disclosed or included in legal proceedings and documentation.

Consulting with supervisors and legal counsel experienced in security matters is advisable to understand all obligations and requirements for safeguarding sensitive protected materials during a divorce. Violations could potentially jeopardize one’s clearance status and program involvement.

Safeguarding Proprietary Work in Divorce 

In fields like defense contracting, professional services, and federal consulting, divorce can also impact contractor obligations around proprietary work product, non-compete clauses, and intellectual property ownership.

Any code, products, processes, reports or other deliverables that are considered proprietary and owned by the contracting company cannot be disclosed or utilized externally. Steps may need to be taken to appropriately restrict a former spouse’s access to such materials after a divorce, as they could constitute violations of non-disclosure agreements and employment contracts.

Similarly, many contractors have non-compete clauses that prohibit them from taking proprietary knowledge to directly compete against a former employer for a defined period after leaving the organization. Divorce documentation should clarify what activities could violate such non-compete terms, and individuals must be cautious about not running afoul of their contractual limitations.

Tax Implications for Contractors

From a tax perspective, there are some important divorce considerations for independent contractors to understand when it comes to reporting income, alimony payments, and dependent child-related benefits.  Self-employed individuals may be eligible to deduct a self employment tax from their income for child support and alimony purposes.

Divorce agreements should clarify dependency exemptions and child-related tax credits that the contractor and his or her divorcing spouse may be eligible for.  In Virginia, parties can agree to apportion child dependency exemptions in a way other than the IRS default.

Retirement Account Divisions

Similar to federal employees, government contractors with retirement accounts like 401(k) plans or self-employment retirement accounts like SEP-IRAs or KEOUGH plans will need to determine how those assets are equitably divided and transferred in a divorce agreement.

For employer-sponsored 401(k)s, a provision known as a Qualified Domestic Relations Order (QDRO) enables direct payment from the plan to a former spouse without triggering taxes or early withdrawal penalties on the transfer amount. An approved QDRO order can transfer retirement assets between the parties with no tax consequences.  Similarly, IRA retirement accounts can be transferred in a tax-free manner as well, provided that the transfers are occurring incident to a divorce.

Key Divorce Factors for Federal Employees

While the unique needs of government contractors were the primary focus of this post, federal employees themselves also face some specialized divorce considerations worth briefly highlighting:

  • Impacts on security clearances, especially if a former spouse is a foreign national
  • Division of federal retirement benefits like the Thrift Savings Plan (TSP) and FERS pension
  • Status of a former spouse’s rights to survivors benefits and pension payouts
  • Potential relocation and career transition challenges due to the divorce

Navigating a divorce as a government contractor or federal employee requires the right legal and financial expertise. With qualified guidance, these workers can ensure all requirements are properly followed while protecting both their professional responsibilities and personal interests in an equitable settlement agreement.

If you’re a federal worker or government contractor in the D.C./Northern Virginia area going through a divorce, securing skilled legal guidance is absolutely critical. The divorce attorneys at Curran Moher Weis have extensive experience helping federal personnel and contractors navigate the complexities of this situation. From safeguarding your security clearance to ensuring an equitable division of retirement assets and benefits, our team understands the nuances involved. We can provide the trusted counsel you need to protect your career and financial future. Call (571) 328-5020 today to schedule a confidential consultation with one of our federal divorce experts. With decades of combined experience, Curran Moher Weis has the specialized knowledge to secure a favorable outcome while upholding all requirements around your unique employment situation. Don’t attempt to navigate this challenging process alone – put our mastery of federal divorces to work for you.


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