Military Divorces 101, Part 1

Military divorces present unique challenges and far-reaching ramifications for our clients.  This area of law is a complex mixture of several Federal and State statutes which are balanced against the servicemember spouse’s particular branch procedures and the standards and practices in your jurisdiction.  At Graine Mediation, we know the jargon, understand the issues, and are skilled at making sure that both parties have all the information they need in order to make the best settlement choices they can mutually agree upon for themselves and their children.

In this special, three-part blog post, we’ll try to demystify this process for you.

military_divorce

Retirement Benefits

Because so many servicemembers retire from the armed forces at a fairly young age, retirement benefits are often the largest and single most important asset to be discussed at a mediation.  The division of military retirement benefits must be dealt with as part of the parties’ settlement agreement.  It is not something that can be put on hold, or the right of the non-servicemember to receive a portion of the other spouse’s military retirement benefits may be lost forever.

Retirement Benefits are Considered Property, to be Divided by the Court (the marital portion): Division and distribution of military pensions is governed primarily by the USFSPA (Uniformed Servicemember’s Former Spouse Protection Act, 10 USC 1408) and §20-107.3 (Code of Virginia, 1950). The USFSPA allows state courts to treat a military retiree’s actual retirement pay as property, to be divided and distributed as per that state’s divorce code. In Virginia, the marital portion of military retirement benefits are recognized as divisible property by the divorce courts.

50%/50% Division of Marital Portion of Military Retirement is Common in Virginia: In Virginia, retirement benefits are to be divided “equitably”, which does not necessarily mean “equally”. Nonetheless, it is fairly common that the former spouse’s

“equitable” share of the marital portion of the military retirement benefits is perceived to be, and ends up being settled or ordered to be, an equal (50%/50%) share.   Also, it is

notable that, in Virginia, 50% is the maximum amount that a Virginia judge can award to the non-servicemember spouse, though parties can agree to a higher ratio if they choose. Also, the DFAS (Defense Finance and Accounting Services) will only recognize court orders to directly pay a former spouse’s share of a servicemember’s retirement benefits up to 50% (if the amount is to be more, the servicemember would have to pay his former spouse the overage).

            Marital Portion versus NonMarital Portion – Coverature Fraction:  The most common method of determining the marital share of a military retirement is by use of a coverature fraction”.  The formula follows:

Number of Months of Marriage

______________________________________

Number of Months of Military Service

 =

Marital Portion of Retirement Benefits

Example:

144 Months (12 Years) Marriage (all during servicemember’s time in military)

______________________________________

240 Months (20 Years) Military Service

=

60% of the Retirement Benefits are Marital of which, most likely, 50% of that 60% will be distributed to the non-servicemember spouse = 30% to the non-servicemember. All of that monthly amount will be eligible to be paid directly by DFAS (met 10/10 rule (see below) and the distribution not greater than 50%.

            The 10/10 Rule:  The DFAS (Defense Finance and Accounting Services) will make direct retirement annuity payments to the non-servicemember spouse only when the following criteria are met:

  • The parties were married for at least 10 years; and
  • During the marriage, the servicemember performed at least 10 years of credible military service; and
  • The servicemember is eligible for retirement (20 years service).

If these criteria are not met, this does not prevent a court from awarding military retirement pay to a former spouse. The Court will simply order that the servicemember spouse pay his or her former spouse directly (without the assistance of DFAS).  This is also true if the award to the former spouse is greater than 50%, since DFAS will only pay up to 50% after the 10/10 rule is met.

Only “Disposable Retired Pay” is subject to division in a divorce. The term “disposable retired pay” (as defined under 10 USC §1408) means the total monthly gross retired pay, minus the following:

  • Amounts owed to the government for previous overpayments (not common),
  • Forfeitures adjudged by a court-martial (not common),
  • Pay waived to receive VA disability (common, but less so than before CRDP), and
  • SBP (Survivor Benefit Plan) premiums for the benefit of the former spouse seeking a share of the retirement (common).

Perhaps of greatest interest, “disposal retired pay” does not include certain types of disability pay in lieu of retirement.

Disability:

                        VA Disability – Retired servicemembers may receive a tax-free    monetary benefit for disabilities that are the result of a disease or injury incurred or aggravated during active military service. The benefit amount is graduated, according to the degree of the veteran’s disability, on a scale     from 10 percent to 100 percent. Compensation may also be paid for disabilities that are considered related or secondary to disabilities occurring in service, and for disabilities presumed to be related to circumstances of military service, even though they may arise after service.  In exchange for receiving the tax-free VA disability pay, servicemembers used to always have to give up their retirement benefits at a commensurate amount.  This is no longer the case in many situations.

CRDP (Concurrent Retirement Disability Pay): Qualified disabled military retirees with 20 or more years of service and at least a 50% disability rating by VA for service (not necessarily combat) related illnesses and injuries will now get paid both their full military retirement pay (taxable) and their full VA disability compensation (non   taxable). This 2004 law will be fully phased in beginning 2014.  That means that military retirees with 20 or more years of service and a 50% (or higher) VA rated disability will no longer have their military retirement pay reduced by the amount of their VA disability compensation. For divorce clients, that means that the former spouse of the service member need no longer fear that a grant of VA disability will cut her or his retirement benefits granted in the divorce.   CRDP is an automatic entitlement.  No application by the servicemember is necessary. Remember: For service related illnesses and injuries, with a VA disability rating of less than 50%, retirement benefits must still be waived, dollar for dollar, in exchange for VA disability benefits (which are not considered marital property, and are not, therefore, divisible by the divorce courts).

CRSC (Combat Related Special Compensation): CRSC is for combat (not just service) related illnesses and injuries, when servicemembers have put in   at least 20 or more years of service.  CRSC is an application-based program (not automatic, like CRDP).  Servicemembers have yearly opportunities to apply for            CRSC.  CRSC is not divisible in a divorce situation (unlike CRDP) and it only requires a 10% VA disability rating (not 50%, as for the CRDP). CRSC is not taxable, like VA disability benefits (CRDP is taxable).

Indemnification Clause:  The effect of VA disability and other    discretionary exchanges of military retirement pay for other non-divisible compensation, may need to be addressed in an agreement. This is true even if      the servicemember spouse is not receiving VA disability at the time of settlement/divorce, because VA disability benefits may be granted (with a commensurate step down of the monthly pension) much later than the actual    divorce. Often times, an indemnification provision is put into a settlement agreement stating that, if the servicemember spouse makes an election to   receive any type of disability pay that results in a reduction in his/her retirement     pay, that he or she will indemnify and pay his or her former spouse the amount that the former spouse would have received if the servicemember spouse did not make that election.

            Survivor Benefit Plan (SBP) & Cost of Living Adjustment (COLA’s): For a former spouse to continue receiving payments after the death of the servicemember, the former spouse must be named in a Survivor Benefit Plan (governed by 10 USC 1448).

This is a big decision for many couples we work with because:

Monthly Cost for SBP – Shared at Proportionate Amount: The monthly retirement annuity will be reduced when there is a SBP in the form of a “premium”. It is important to understand that, in cases in which a former spouse is awarded a percentage of a military retiree’s retired pay, and SBP coverage is elected for the former spouse, both former spouses, in effect, pays a portion of the SBP premiums in an amount proportionate to the division of retired pay. This happens automatically because divisions of retired pay are based upon disposable retired pay, which has already been reduced, in part, due to the SBP premium (the premium was “taken off the top” before division).  Please note, this is in distinction from FERS benefits, which allow more flexibility to assigning SBP costs between former spouses.

Private Agreement Between Spouses for Former Spouse to Pay Costs of SBP: Some clients enter into agreements whereby the former spouse must pay the entire cost of the servicemember’s participation in SBP.  In those cases, the arrangement must be between the former spouse and the servicemember, even if DFAS is paying the former spouse her or his share of the retirement benefits directly, because DFAS will not make such an allotment.  The former spouse, in such a case, would need to reimburse the servicemember by some other means.

What Is the Out of Pocket Cost for SBP:  The SBP premiums for spouse coverage are:

(1) 6.5% of your chosen base amount, or if less (for all servicemembers who joined the armed services on or after March 1, 1990 and those retiring for length of duty only (not disability), or

(2) 2.5% of the first $595.00 of your elected base amount (referred to hereafter as the “threshold amount”), plus 10% of the remaining base amount.

The threshold amount was $595.00 as of January 1, 2004. The threshold amount will increase at the same time and by the same percentage as future active duty basic pay.

New Spouses Not Entitled to Any SBP if Former Spouse is Already Named: Military retirement benefits, unlike many private pensions and FERS, only allow for one survivor, i.e. if the servicemember remarries, and the former spouse is named to receive benefits under the SBP, the servicemember’s new spouse will receive $0.00 upon the death of the servicemember.  (This is in distinction from Federal Government Employees’ FERS and CSRS retirement benefits that allow for assignment of partial benefits to an ex and a current spouse.) It is important to remember that, with military SBP, there are time limits on notifying DFAS of the SBP:  An election usually must be filed with the appropriate Service Secretary within 1 year of the date that the parties’ divorce decree is entered, but this is not necessarily the case if the SBP order is entered at another time. Also, you will need to check with your branch and other appropriate offices for up to date information, as is always the case with military divorces.

Remarriage of Former Spouse:  If your surviving spouse remarries before age 55, all SBP payments will stop and the servicemember will no long have that premium deducted from his monthly payment amount.  However, marriage by the former spouse after age 55 has no effect.  Also, if the surviving former spouse’s new marriage ends in divorce or death of the new spouse, SBP payments may be reinstated.

COLA: Most court orders that direct a portion of a servicemember’s retirement benefits to go to his or her former spouse specify that a percentage of the servicemembers disposable retired pay be paid out to the former spouse.  When that is the case, any cost of living adjustment (COLAs) will be automatically included in the former spouse’s monthly annuity award.  It is only with a fixed dollar amount award (not as common) of retirement that a former spouse is not entitled to the COLAs.  (In 2013, the COLA was 1.7% for those servicemembers and retirees who did not opt for REDUX.  Servicemembers who availed themselves of the $30,000 REDUX bonus received a COLA of .7%).

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.

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