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Military Retirements in Divorce

Military Retirements in Divorce

These blogs, including this one, were written for the sole benefit of helping myself gain a deeper understanding of these various topics. The source of most of my information comes from various Marshall Willick publications. Marshall Willick is one of, if not the most, knowledgeable family law practitioner in the state of Nevada. Thus if you are looking for an authoritative source you may be better suited by visiting Mr. Willick's website which has a substantial amount of information on virtually any family law subject I have or will blog about.

Military retirements are to be divided as property per the law of the state in which they are divided in. The Uniformed Services Former Spouses Protection Act permits state courts to distribute military retirements to former spouses. Military retirement benefits can be treated as property to be divided between the parties or can be used to satisfy an alimony or child support obligation. Keep in mind that Federal law only allows a former spouse to collect up to 50% of disposable retired pay. There are times when that 50% maximum can be extended to 65% for purposes of satisfying certain arrears obligations. If a practitioner wishes to have military retired pay satisfy a support obligation, whether child support or alimony, the practitioner need only serve a certified court order directing as much on the military pay center.

Division of military retired pay may be done by way of a certain dollar sum or otherwise as a percentage. Be advised that if you use a dollar sum in your order your recipient spouse will lose his or her interest in cost of living adjustments. Cost of living adjustments (COLA) are adjustments made to the value of a military retirement so as to correct for inflation which would otherwise deteriorate the value of these retirements over time. As stated above the statue limits the division of retired pay to 50% of disposable retired pay for the purpose of satisfying property division. Up to 65% of disposable retired pay may be reached for the purpose of satisfying child or spousal support arrears. Be advised that it is the pay center which won't pay out more than 50% of disposable retired pay. Thus it is likely that you can get a court order directing for a distribution of more than 50% but any additional amounts will have to be satisfied from the member directly as opposed to the pay center.

Beware of the special jurisdictional requirements which govern military retirements and their distribution. Any valid court order for the division of public and private retirement plans will be enforceable to divide such plans. This is not true for military retirement benefits divided as property. If you want your order dividing military retired pay to be honored by the military pay center then you had better make sure you have property jurisdiction over the member. To have this jurisdiction you need to have one of three things: (1) the member has residence in your court's jurisdiction; (2) the member is domiciled in your court's jurisdiction; or (3) the member consents to jurisdiction. Without one of these three types of jurisdiction over the member, the pay center will not effectuate a property distribution order dividing the military retirement.

However this rule doesn't apply for orders directing payment of alimony or child support to be paid by the pay center. The pay center will honor a valid order for child support or alimony as long as the state has ordinary personal and subject matter jurisdiction under its own law. So to sum up, ordinary state long-arm jurisdictional rules will not suffice for the purpose of dividing the military retirement as property. You must be sure one of the three extra jurisdictional requirements outlined above has been satisfied in order to obtain an enforceable order over this property.

Be advised that the military pay center will always be unable to pay directly the non-member spouse unless the ten year rule has been met. The ten year rule simply put means that there must have been ten years of service which overlaps with ten years of marriage. And of course the member must serve 20 years to qualify for his or her retirement, hence the 20/10/10 rule. Don't assume that the non-member spouse doesn't have an interest in the retirement just because she or he hasn't satisfied the ten year rule. It's just simply that the military pay center won't be able to pay directly to the non-member.

This ten year rule can be problematic for the practitioner hasn't achieved ten years at time of divorce. The question becomes how does the non-employee spouse receive her or his interest if the pay center can not distribute. If the interest is small then a lump sum property settlement may suffice as there may be sufficient assets to effectuate this settlement. However if the interest is large then there likely won't be enough assets to offset the value of the non-employee's interest. The two options then available for the non-member spouse are either a stipulation to secure her non-member interest. However this may require a bargained for reduced payment. The other option would be to see an irrevocable alimony obligation. Essentially the parties might stipulate that the member spouse will provide an irrevocable, unmodifiable, alimony in an amount measured by the military retirement's benefits. In exchange for this the non-member will forego her interest in the member's military retirement. These alimony payments may then be payed by the military pay center. Cost of living adjustments of course can and should be factored into this alimony award.

Disability awards are generally separate property of the disabled spouse. In the military there are two different types of disability awards dependent upon whether they are granted at or after retirement of the member spouse. Retired military pay is taxable. However, the member is able to claim a tax free monthly share of such retirement which corresponds to the percentage of the member's disability. Thus this number corresponds to the VA disability rating assessed by the VA. For the member claim this tax free amount he or she must waive a portion of his retired pay equal to the sum paid by the VA. Thus a member may receive military retired pay for disability or military retired pay waived in favor of VA benefits. Because of the separate nature of disability pay neither of these types of benefits fall within the definition of disposable pay which may be split by court order.

Keep in mind that although disability awards can not be divided as community property such separate property may still be considered by the court. This separate property bay be considered in an unequal distribution of community property or otherwise taken into consideration in issuing an alimony award.

Beware of the situation where the disability is claimed by the member spouse post-divorce. Given the fact that any sum paid by the VA will reduce the member's receipt of regular retired pay by a proportionate amount this could result in the non-member spouse being short changed. Again the military pay center won't honor an Order dividing disability pay. Fortunately courts have taken action upon motion of party, years after divorce, to correct a situation such as this where a non-member's spouse suddenly finds his or her retirement reduced. To be safe, a practitioner should include an "indemnification for reduction" clause in the decree. Such a clause will protect a non-member spouse in the event the member spouse characterizes the nature of the retirement benefits at a date post-divorce.

Be advised that though the general rule is that a member doesn't vest in his retirement until he accrues 20 years there are exceptions to this rule. There are early retirement benefits available under various programs. Look out for the Temporary Early Retirement Authority (TERA) which is available for members who have between 15 and 20 years of service. The retirement is similar to a regular military retirement except that the payment sum is less to reflect actuarial adjustments. These retirements can be divided as community property.

As a practitioner it makes sense to advise your non-member client to try to begin receiving his or her payments as soon as possible. Nevada case law, specifically Gemma v. Gemma, 105 Nev. 458, 778 P.2d 429 (1989), has held that the non-member spouse has the right to receive upon first eligibility. The non-member will generally end off better financially from seizing his or her share as soon as possible. Also, be advised that the pay center will not distribute arrears on property payments. So that any arrears, missed payments, will have to be seized from the member spouse directly.

There will be times when all or a portion of a member's retirement is not mentioned in the Decree of Divorce. Years after the divorce the non-member may seek his or her interest in such property. This is called a partition action. Keep in mind that just as you need federal jurisdiction and state court jurisdiction to divide a military retirement in the divorce you will also need to meet these same jurisdictional requirements in any partition action. The USFSPA only allows partition if the issuing court has federal jurisdiction over both the member and the former spouse. There may be a time when the non-member spouse faces a jurisdictional challenge by the former spouse. For the purposes of efficiency and strategy the non-member spouse may want to file in both the jurisdiction she or his is in as well as the jurisdiction of the member spouse so as to force the parties or court to stipulate to one of the two jurisdictions.

Keep in mind the non-discharge ability of this future stream of payments by way of bankruptcy. Given that the future income is deemed to be the non-member spouses separate interest the member spouse has no ability to discharge this future interest in bankruptcy. However, there still may be some question as to whether unpaid arrears can be discharged, but it is likely that such arrearages would remain an obligation of the member spouse to the non-member spouse. Keep in mind that in this situation just as in the situation where the member elects to receive VA benefits in lieu of retirement benefits the member spouse will likely be considered to be a "constructive trustee" of the retirement benefits intended for distribution to the non-member spouse.

Valuing military benefits can be complicated. There are different formulas used depending on whether the member joined prior to 1980, between 1980 and 1986, or after 1986. Generally speaking you are going to look to the three highest years of basic pay times a multiplier. The multiplier is 2.5 %. Thus at 20 years of service the member's retirement is going to be 50% of the average of his three highest years of basic pay. If the member had 30 years of service then the member would receive 2.5% times 30 which is 75% of the three highest years of basic pay. Be advised that 75% is the max possible percentage of basic pay receivable. For those members entering service after 1986 you will subtract a percentage point for each year of service under 30 years. Thus at twenty years of service you would have 50% of basic pay minus 10 percentage points given the ten years under 30 years of service. Thus the member would receive 40% of basic pay. Then at age 62 the percentage point reduction is removed so that the member receives a straight 2.5% multiplied by years of service multiplied by top three years of basic pay. There is more to military retired pay than this explanation provides for. For a better explanation see Marshall Willick's website which will have ample information on the subject.

Keep in mind that military members can participate in Thrift Savings Plans (TSP). Keep in mind that a TSP is a defined contribution plan (cash plan). Members have only been able to participate in these TSPs since 2000/2001. These plans are more easily divided given the certainty of their value and easily divisible nature.

A practitioner dealing with division of a military defined benefit plan has more than one option as to division of such asset. The first option is to simply do a trade-off of retirement benefits for other assets. This is the simplest method of division and avoids future speculation or uncertainty. However the drawback to this approach is the difficulty in valuing a future retirement. There are so many variables that it is difficult to come up with a realistic present value to attach to such future retirement. The other problem is that there will rarely be sufficient other assets available to accommodate such trade off.

Alternatively the practitioner may pursue an "in-kind" division of the benefit. This is usually going to be the preferable approach given the full and fair division of the asset. The drawback of this approach is the potential for future litigation given circumstances which may occur in the future or interpretations of the order upon actual vesting and distribution. To effectuate an "in-kind" division of the retirement in Nevada you are going to use the "time rule". The time rule is essentially a formula used to divide the asset. Essentially you have a fraction, in which the numerator of the fraction is the years of marriage overlapping with service and the denominator is the total years of service. This fraction is then multiplied by the value of the retirement benefit. So if the couple were married for ten years in which the member was in the service and the member had 20 years of service you would have a resulting 10/20 or ½ multiplied by the value of the retirement benefit. This ½ interest is simply the community interest. So the non-member spouse is entitled to ½ of this community interest, or ¼ of the total value of the retirement.

The last alternative available for practitioners or the court is a "wait and see" order. These orders reserve jurisdiction until the member is eligible for retirement (or actually retires). Thus at a later date the court can look at the value of the retirement and issue all orders relating to its division at that time.

The practitioner need to be aware of cost of living adjustments (COLA). COLAs are increases in the sum of retirements intended to offset the inflations devaluing effect on the value of the retirement. The military pay center will attempt to look at the intent of the parties in deciding whether the non-member spouse receives her or his interest in such COLAs. Thus it is incumbent upon the practitioner representing the non-member spouse to specific that the non-member is entitled to receive COLAs. Practitioners should always specify the spouse's interest in the retirement as a percentage and not as a lump sum. If a lump sum is specified then the pay center will not distribute the non-member's interest in in any such COLAs.

Also, keep in mind that if you represent the non-member spouse to provide for the court's continuing jurisdiction. Generally speaking any circumstance which could occur to change the parties initial expectations as to retirement payments will work to the disadvantage of the non-member spouse. So make reservations of jurisdiction in your order so that equitable actions can take place if unexpected contingencies occur diminishing your non-member spouses interest.

Non-member spouses are entitled survivor benefits as is the case for most defined benefit plans. The survivor benefit plan pays a monthly annuity to certain spouses and dependents. By court order a prior spouse may be designated the survivor beneficiary of the military defined benefit retirement. The practitioner need to be careful with this survivor beneficiary election. The former spouse has exactly one year from the date of divorce within which to serve the deemed election notice on the proper office of the military pay center. If not done within this one year time frame the benefit will be lost.

Former spouses who fulfill certain legislative requirements will receive special medical benefits. For a former spouse to receive full medical benefits the member must serve 20 years and the marriage must overlap service by at least 20 years. These former spouses will qualify for TRICARE which is the military's current health care program. Fortunately the practitioner doesn't need to include any special language or any language in the order whatsoever to afford a former spouse this medical protection. However the practitioner need inform the former spouse that if he or she remarries she will lose such medical coverage. Additionally, if she becomes covered by an employer-sponsored health care plan she will lose her TRICARE benefits at least until such time as the employer-sponsored plan ceases. Finally, at age 65 when the non-member spouse qualifies for Medicare she will lose her military TRICARE benefits.

Members of the reserve have their own retirement system. The significant difference between reservist and active duty member's retirement is that in the Reserve system a member must have 20 years and also reach the age of 60 to qualify for a retirement. The 20 year requirement is not such a simple calculation either. In order for the reservist to accumulate a year of service he or she must accumulate 50 retirement points. Points are awarded for each day of active service, or for full-time service while performing annual active duty for training or attending required training. Thus when dividing this retirement a practitioner should assume the typical years of marriage divide by years of service will suffice. This is because the 20 years of service may not be consecutive but perhaps intermittent.

Military member compensation is tied to the member's duration of service as well as the member's rank. In addition to basic pay be advised that a member is likely receiving Basic Allowing for Housing (BAH) as well as Basic Allowance for Subsistence (BAS). These two additional allowances will generally be the two largest forms of compensation other than basic pay. These types of pay, BAH and BAS, will vary depending on numerous factors such as the member's assignment, field, living situation, and dependents. Also keep in mind that some forms of pay such as BAS are non-taxable. As a result the member's net income will often be higher than you might assume based on an initial glance over.

However, be advised that there are many other special pay classes. Look for flight pay, sea pay, special assignment pay, hazardous duty pay, and hostile file/imminent danger pay. As a practitioner it is important to get your hands on the members Leave and Earnings Statement as soon as possible. The Leave and Earnings statement will give you a full picture of the member's income including basic gross pay, special pay and allowances. To get this Leave and Earnings statement have the member sign a release and submit the release with a request to a military installation or DFAS.

Be advised that a former spouse receiving her community interest in the retirement per the Survivor's Benefit Plan will pay taxes on the income received. So these taxes are not withheld by the government prior to distribution.

Again this information was written with the aim of improving my own, Eric Roy's, knowledge on this subject. This is the law as I understand it. That being said for a better authority on the source look to Marshall Willick Law Group and the variety of information found on Mr. Willick's site.

Categories: Family Law