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Dividing Retirement Benefits and Disability Pay

State courts have the ultimate responsibility to determine how property, including retirement accounts and pensions, will be divided between divorcing spouses. However, a variety of federal laws and regulations impact court decisions by defining what disposable property is and when it can be distributed in a military divorce.

In general, military retirement benefits earned during a marriage can be divided between divorcing spouses. State law determines whether military pensions will be treated as communal or separate property. How pension benefits are classified can have a major effect on property division.

The share of military retirement awarded to a spouse cannot be discharged in bankruptcy. A military spouse who files for bankruptcy must still pay a former spouse the share of the pension ordered by the court.

Disability payments made to a service member are generally not divisible, but courts can offset those payments by awarding other property in a divorce. Non-military spouses should be aware of the rules regarding military pension benefits to ensure that a fair share of property is received in a divorce.

As a first step, be sure that the state court in which the divorce is filed has proper jurisdiction. A court without full and proper jurisdiction will not be able to legally divide military retirement benefits. If spouses cannot agree on the court in which to file the divorce, it must be filed in the state where the military spouse is either domiciled or is a resident.

Dividing Retirement Benefits in a Military Divorce

The Uniformed Services Former Spouses Protection Act (USFPA) is a federal law that allows state courts to award a portion of a service member's disposable retired pay to a former spouse. Spouses can agree to payment of a specific amount, otherwise the amount will be decided by a state court judge.

Service members are generally entitled to receive military retirement benefits after 20 years of active service. Payments can begin immediately after leaving military service. Reserve members are also entitled to receive retirement benefits after 20 years of service, but payments do not begin until the reservist reaches age 60.

Because the 20 years required to obtain benefits do not need to be served consecutively, military retirement benefits need to be considered even if the military spouse is not currently serving in the military. If the military spouse was in the service while married, that spouse may still be able to accumulate additional years after divorce and become eligible for a pension.

If the military spouse is receiving military retirement benefits at the time the divorce is filed, calculating the benefit is fairly simple. A current Retiree Account Statement will show the amount of pay and benefits received.

The non-military spouse should obtain a copy of the military spouse's DD Form 214, the certificate of discharge from active duty. The form will state the total time of active-duty service including the date of entry and discharge. In many cases, these two documents will be all that's required to quickly calculate and allocate the marital share of the retirement benefit.

If military retirement benefits are not yet being paid, there are a variety of ways to calculate retirement pay. Numerous factors must be considered. For example, if a service member opts to take a $30,000 Career Status Bonus (CSB) after 15 years of service in exchange for reduced retirement pay, the pension benefit of the non-military spouse will also be reduced.

Using an actuary who knows military mortality tables and other relevant information is often desirable. Alternatively, the website for the U.S. Department of Defense provides calculators that can determine benefit payments using a variety of scenarios.

Once the value of a military pension has been determined, the non-military spouse will have to choose whether to wait until the military spouse begins collecting retirement pay or accept a lump sum buyout in cash or other property at the time of divorce. Taking a lump sum has the advantage of avoiding extended entanglement in divorce-related issues and the military system.

The effect of what's called the "10/10 Rule" should also be considered. If the marriage has lasted at least 10 years and the military spouse has accumulated at least 10 years of creditable service during the marriage, the government can be required to pay military retirement benefits directly to the non-military spouse.

If the rule does not apply, the non-military spouse must depend on the ex-spouse to send regular payments, which may not begin for many years. It may be preferable to accept a lump sum buyout at the end of the divorce.

Payment of military retirement benefits ends when the service member dies, unless that person signed up for a Uniformed Services Survivor Benefit Plan that will continue to make payments to the former spouse via an annuity.

How Disability Payments are Treated

Military disability payments are not considered disposable retirement pay. Disability retirement pay is available to service members who have accumulated a minimum number of service years and who are disabled to the extent that they cannot perform their duties. These payments cannot be divided by a state court.

Under certain circumstances, a service member may waive retirement payments and accept disability payments instead. This exchange of benefits can deprive a non-military spouse of thousands of dollars unless that spouse is vigilant.

Similarly, VA disability compensation is paid by the Department of Veteran's Affairs and is intended to cover injuries or disabilities that occurred during active duty or that became worse as a result of active service. To obtain VA disability compensation, the service member must waive an amount of retirement pay. The amount of retirement pay waived is no longer available for division with the former spouse.

Military Divorce Decree Protections

Federal laws only allow state courts to divide "disposable retired pay", so the decree should use that same language in provisions allocating military pension benefits. Disposable retired pay includes a service member's gross retirement pay less government deductions.

Non-military spouses have several options to protect their interests in receiving a fair share of the service member's military retirement benefits.

Spouses can sign a property settlement agreement, have it approved by the court and reference it in the divorce decree. The agreement should include a provision that if the service member waives retirement pay to obtain disability payments or is placed on a disability retired list, the service member will make monthly payments to the non-military spouse to offset the lost retirement pay.

A similar provision might be added if the military spouse either took or could still take a Career Status Bonus that reduces his or her pension benefit. At a minimum, the decree should state that the military spouse must inform the other spouse if a CSB is taken after the divorce is final.

If an agreement between spouses cannot be reached, the non-military spouse can ask the court to retain jurisdiction to reopen the issue of alimony or spousal support in the future. Should the service member's retirement pay be reduced by disability payments or other factors, the spouse can then ask the court to order payment of the lost retirement benefit as spousal support.

Since a service member becomes eligible to receive retirement benefits after 20 years of active service but may choose not to retire, it can be beneficial to include a provision in the decree stating that the non-military spouse is entitled to receive his or her share when the military spouse becomes eligible for retirement. In many cases, it should be easy to calculate an exact date.

If the service member signed up for a Uniformed Services Survivor Benefit Plan while married, the divorce decree should reference it and indicate whether the plan is to continue after divorce. 

If the 10/10 rule applies and you don't want to rely on your former spouse to send your share of military retirement benefits, the decree must include language requiring retirement benefits to be paid directly by the Defense Finance and Accounting Service.

Military retirement and disability pay issues can become complicated. Service members and their spouses need to fully understand how federal laws may impact the amount and division of military benefits. When one or both spouses have served in the armed forces during the marriage, it is essential to consult a knowledgeable family law attorney who has experience handling military divorces. If you have any questions concerning a military divorce, contact the Law Offices of Peter Van Aulen today at (201) 845-7400 for a free initial consultation.

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