Military Retirement Benefits and Divorce

Military retirement benefits are perhaps the most important part of any military divorce, and are usually the largest single marital asset in a military marriage. There are complex rules governing what benefits are available during life and upon death, how they can be divided, and how they can be protected or lost. Learning a few basic concepts can help you understand how to protect your interests in a military divorce.

The Most Valuable Asset

Retirement benefits are usually the most valuable asset of marriages, often exceeding the value of all other assets combined – including the equity in the marital residence. This is particularly true in military marriages, in which frequent moves are the norm.

Almost universally, pension benefits are recognized as community or marital property, including benefits that are still being earned (“unvested” and unmatured pensions). This is because the benefits accrued during marriage and future receipt of retirement income is actually a large part of the benefits earned by the labor performed during marriage.

Senior enlisted personnel frequently retire after 20 years of active service in their early forties and receive a lifetime pension of one-half their basic pay.This means a minimum of about $2,000 per month, every month, for life – plus cost of living adjustments. These benefits are worth some half million to a million dollars or more in “present value” – not including cost of living or inflation increases.

As a practical matter, you may need to deal with pensions during the divorce instead of deferring the matter to be dealt with “later”. Some states do not permit a “partition action” after divorce if the retirement is omitted from the divorce itself. Failing to fully address the retirement during the divorce could leave the spouse with no interest in the most valuable asset of the marriage.

In 1982, Congress enacted the Uniformed Services Former Spouses Protection Act (USFSPA), explicitly permitting states to divide military retired pay as property belonging to both spouses in a military marriage, or to use military retired pay as a source of alimony or child support payments. The USFSPA does not give former spouses an automatic entitlement to any portion of members’ pay. Only state laws can provide that military retirement pay can be divided in a divorce, or provide for alimony or child support to be paid from a military retirement.

The traditional military retirement is a “defined benefit” type of plan: it does not have a cash balance, but like a traditional pension, it pays monthly benefits (which vary depending on the service member’s rank and length of service) every month from the time of retirement for life. Reservists have a slightly different retirement system, which only starts paying monthly benefits once the reservist becomes 60 years old.

From time to time, the military permits members to take one of several forms of early retirement without serving the usual 20 years or longer. If the divorce occurs during service, the attorney for the spouse must know about those programs and ensure they are reflected in the decree protections for the spouse.

A former spouse’s right to a portion of retired pay as property terminates upon the death of the servicemember or the former spouse, unless the court order explicitly provides for the former spouse to be the beneficiary of the Survivor’s Benefit Plan (SBP).

Most states divide pensions according to the “time rule”: each spouse gets 50% of whatever benefits accumulated during the marriage. Under the USFSPA, a spouse may get direct payment of up to 50% of “disposable retired pay” directly from the military pay center. If debts are also owed for child or spousal support, up to a total of 65% can be collected.

Military retirement division may be made by percentage or dollar amount, and it is possible to provide for cost-of-living adjustments (COLAs) when dividing the retirement benefits by percentage.This secures both parties against any decrease in the value of their portions of the retirement caused by inflation.

Thrift Savings Plan

The Thrift Savings Plan (TSP) is a defined contribution type of plan for federal employees; like a private employer’s 401(k) plan, it is a mechanism for diverting pre-tax funds into retirement savings. It was made available to military members in 2001. As of 2012, a “Roth” (post-tax contributions) option was added to the TSP.

TSP balances are also divisible upon divorce; typically, each spouse is awarded half of whatever benefits accrued during the marriage. Orders dividing TSP should deal properly with gains and losses, select a proper valuation date, etc.

Special Jurisdictional Rules

Special jurisdictional rules must be followed in military cases to get an enforceable order. An order dividing retired pay as property will only be honored by the military if the court had personal jurisdiction over the member by reason of:

1) residence in the territorial jurisdiction of the court (other than by military assignment);

2) domicile in the territorial jurisdiction of the court; or

3) consent to the jurisdiction of the court.

In most places, and under the current regulations, making a “general appearance” or litigating any issue in a divorce case usually counts as “consent” to trial of the military retirement issue as well.

Disposable Retired Pay

Since 1991, the USFSPA has permitted division of “disposable pay,” which was redefined to remove the deduction of income taxes before retired pay was divided. Since then, each spouse gets a portion of the pre-tax retirement, and each must pay taxes on the sum he or she receives.

If a military member claims a disability award, the total amount of money going to the retired military member will stay the same or be increased (depending on which program is involved), and the money will become partly or entirely tax-free to the member, and so is much more valuable.

Some disability awards are simply in addition to the retired pay, so the spouse is unaffected (while the military member receives the disability pay in addition to a share of the retired pay). Sometimes, however, the election of a disability award greatly reduces the amount of money considered “disposable retired pay” and therefore reduces the money paid to the former spouse.

There are several different disability programs and the ways they affect retired pay are complex. It is critical that the attorney for the spouse in a military case understands all those programs, and knows how to draft appropriate compensation clauses to protect the spouse from being denied benefits after the divorce.

The bottom line to these cases is that the responsibility is upon the attorneys – particularly the attorney for the spouse – to anticipate and prepare for post-divorce status changes or military orders by building that anticipation into the decree.

The “Ten-Year” Rule

The so-called “ten-year” limitation is much misunderstood. A court order that divides military retired pay as property may only be directly paid from the military pay center to the former spouse if the marriage lasted for at least ten years during military service.

If the marriage overlapped service by less than ten years, the right still exists, but the spouse has to obtain the monthly payments from the retired member rather than from the military pay center directly, or the court must characterize the payments as a stream of spousal support in order to obtain direct payment from the military pay center.

Survivor’s Benefits

The Survivor’s Benefit Plan (SBP) provides monthly payments of 55% of the selected retired pay amount to a single named survivor. It can be allocated to the former spouse by the divorce court. There is a premium for coverage, and there is a way to arrange for that premium to be paid by the member, the spouse, or divided between them.

The military retirement system is different than many other kinds of retirement, especially regarding survivorship benefits. If the spouse dies first, the member gets an automatic reversion of the full spousal share. But if the member dies first, the spouse gets nothing at all – unless the SBP is in place.

Medical Benefits

If the parties were married for 20 years during military service, the spouse is entitled to free Tricare until the spouse becomes eligible for Medicare. If the overlap of marriage and service was shorter than 20 years, certain lesser benefits are available; most former military spouses can get Continuation of Health Care Benefits Plan (CHCBP) medical coverage, although there is a premium cost for that coverage.

Additional Resources

Much greater explanation of these and other aspects of military retirement in divorce, including a detailed article titled “Divorcing the Military,” drafting guides, model clauses, special calculators, and lots more, can be found at http://willicklawgroup.com/military-retirement-benefits.

Marshal S. Willick, Esq. is the principal of the Willick Law Group, an A/V-rated Las Vegas family law firm. Marshall is also a continuing legal education instructor. He has participated in hundreds of divorce and pension cases in the trial courts of Nevada and other states, as a consultant, expert, or as amicus curia. willicklawgroup.com