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Military Disability and Waiver of Retired Pay

As is the case with all my articles, this was written for the sole purposes of bolstering my personal understanding of the subject matter. For a more in depth understanding of this subject I refer you to Attorney Marshall Willick and his website. He is perhaps the most educated Nevada divorce practitioner in the area of military divorce.

This article discusses the post-divorce re-characterization of military retirement. Typically in a divorce proceeding the court takes a snapshot as to the status of each spouse's share of military retirement at divorce. What this means is that the non-member's interest in the member spouse's military retirement is decided at the time of divorce. Of course if the member is still active then the non-member's overall percentage interest in the total retirement diminishes with continued duration of service. That being said, the non-member spouse is entitled to a portion of the member's retirement equivelant to to the amount of years marriage overlaps with years of service divided by total years of servicer multiplied by 50%.

That being said, there are occasions when this property interest which was decided at divorce is later re-characterized and diminished by the member spouse's unilateral post-divorce actions. Specifically what happens in this instance is that the member spouse applies for military VA disability benefits after the date of divorce. The Veteran's Administration gives a disability for combat or service related disabilities. The veterans receive a disability rating in proportion to their assessed level of disability which is rated in 10% increments. However prior to 2004 and to some effect post 2004 any receipt of VA disability reduced any receipt of regular military retirement benefits on a dollar for dollar basis. The member spouse has an incentive to receive the VA disability payment in lieu of regular retirement benefits given the fact that VA disability payments are tax free.

The problem here arises when the member's receipt of VA disability reduces the regular retired pay. Specifically, VA disability is non-divisible. VA disability pay is considered post-divorce income replacing and thus separate property. Thus it cannot be divided as would be the case with other community property. Thus the military pay center will not pay out VA disability to the non-member spouse. The net effect of this is that when the member elects to receive the VA disability in lieu of regular retired pay the non-member spouse is divested of her or his community interest in the regular retired pay.

Fortunately the case law in Nevada has evolved over the years so as to protect the non-member spouse in these situations. Generally speaking, the courts will force the member-spouse to compensate the non-member spouse for any post-divorce recharacterization of the non-member spouse's interest in the military retirement. The court can achieve this by either a post-divorce alimony obligation or alternatively by way ordering a post-divorce property equalization payment from the member to the non-member equivalent to the amount waived for disability benefits. The courts have essentially viewed the member spouse as maintaining a constructive trust for the benefit of the non-member spouse. Thus the member spouse shouldn't be permitted to take unilateral action to divest the non-member of her or his interest.

Despite the favorable case law, cautious practitioners should include language in their Decree of Divorce providing for protection of the non-member spouse in the chance of such potential post-divorce attempt at re-characterization by the member spouse. The cautious practitioner should reserve jurisdiction of the court for such circumstances. For it is the non-member spouse who almost always stands to lose by way of unexpected post-divorce circumstances.

Fortunately this issue has been somewhat resolved since 2004. Beginning in 2004 the military began to phase out monies waived in favor of VA disability. The phase out is set to occur over a ten year period. So that by 2014 all VA disability can now be received in full, in addition to regular military retirement. Thus it is not necessary to waive military retirement in order to receive VA disability. This is called concurrent receipt. That being said, this concurrent receipt is only allowed for members who have at least a 50% disability ratings.

Thus the issue is now moot for members with at least a 50% disability at least as it related to future potential re-characterization of military benefits. However the issue still remains for members whose disability rating is less than 50%. The issue also still remains for those who have already received VA disability in lieu of regular retirement and thus owe arrears to their former spouses.

Categories: Family Law