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Vol. 72, No. 8, August 1999

A Primer on Dividing a Military Pension

Benefit payments to retiring military persons can be substantial additions to a marital estate. However, acquiring them for the divorcing nonmilitary spouse can be an intricate, illogical process loaded with traps or the unwary practitioner.

By David B. Halling & Wendy Drefahl

he Uniformed Services Former Spouse's Protection Act (FSPA) and the Survivor Benefit Plan (SBP) protect a divorcing spouse who wishes to obtain a portion of a military member's retired pay and survivor benefits.¹ The FSPA authorizes state courts to divide military retired pay and provides the rules for doing that. The SBP protects the former spouse's award against the event of the service member's death. Since retired pay terminates on the service member's death,² the SBP is the only means of continuing payments from the military to a former spouse.

A military reservist is entitled to retired pay (a pension) when he or she is at least 60 years old and has performed 20 years of military service.³ In the interest of dividing marital property, the military will make payments directly to a former spouse provided that at least 10 years of the parties' marriage overlap with the member's military service.⁴ (These limitations do not apply to division of retired pay for purposes of alimony [maintenance] or child support.⁵ ) If the parties were married for less than 10 years during which the member was in service, a portion of the member's retired pay is still considered divisible marital property. However, given the "10-year-rule" described above, the court must require the member to pay the former spouse directly, as the military will not.

The usual vehicle for dividing retirement pay, the Qualified Domestic Relations Order (QDRO), is not available to divide military retired pay. The QDRO is a creature of the Employee's Retirement Income Security Act (ERISA), from which military retired pay is exempt.⁶

The court must have jurisdiction over the military spouse in order to divide the retired pay; presence in the state on military assignment does not equal jurisdiction. Unless residence other than that due to military assignment, domicile, or consent are proper, the state court has no jurisdiction to divide the retired pay.⁷

In cases where the military person was married before, it is necessary to ascertain what the military person's "disposable retired pay" will be. In the event of an earlier marriage, the first spouse may have been awarded a portion of the member's retired pay. If that was effectuated, that award reduces the money available to the second spouse because deductions for retired pay (no matter how many spouses) may not exceed 50 percent of the service member's disposable retired pay.⁸ Conversely, there is no way a member can protect against loss of up to 50 percent of retired pay because the same code section makes that amount available to one or more former spouses.

Wisconsin law is clear that military retired pay must be considered in division of marital property upon divorce.⁹

Retired Pay

A spouse is entitled to receive up to 50 percent of the member's "disposable retired pay."¹⁰ Disposable retired pay is gross pay less certain deductions.¹¹ These deductions can include payments to an earlier spouse. It is important to know what the deductions in fact are, particularly if this is a second or third marriage. If the divorce judgment just divides the "disposable retired pay" and the existence of payments to a former spouse or other deductions hasn't been ascertained, the divorcing spouse may get substantially less than what was expected. Regardless of the 50 percent maximum that the military is allowed to pay any combination of former spouses, a second or third spouse theoretically still is entitled to what the family court awards. Any amounts in excess of what the military will pay to that spouse must be paid directly to the spouse by the member. Under this circumstance, the parties may not be able to sever ties. Often an agreement to buy out or offset the former spouse's interest is reached.

There is a further problem with disposable retired pay. United States Code section 1408(2)(C) requires that (state) court orders must provide for payment expressed in dollars or as a percentage of the total disposable retired pay. If the state court order to divide retired pay provides the former spouse with an award expressed as an exact dollar amount per month, that spouse will not receive any cost of living increases, which historically are applied each year to retirees' benefits. A percentage award will include any cost of living increases that are applied to the member's retired pay.

Until a member attains 20 years of service, he or she does not have an "accrued" retirement benefit. Logically, if the parties are divorced prior to the member's attaining 20 years of service, an order cannot award a former spouse a percentage of the member's retired pay that had "accrued as of the date of divorce." A former spouse can only be awarded a portion of the member's total disposable retired pay.

If the military member is not retired, it is very difficult to predict what his or her disposable retired pay will be at retirement. An active duty member's retired pay is calculated on years and months of creditable service and base pay at retirement. A reservist's retired pay is calculated on the number of points earned during the career, a certain multiplier factor, and the base pay tables in effect when the reservist turns 60.

Practice pointer. Consider determining the marital share of total retired pay by using a fraction. The numerator appropriately would be the years of service (or points for reservists) at the time of the divorce (or during the marriage). This numerator amount must be expressed as an exact number, and supplied in the order, as the military will not calculate it. The denominator can be expressed as the total number of years of service (or points for reservists) that the member completes or attains at retirement. Although at the time of the divorce this denominator, which is based on total service (or points), may not be known, the military will supply it upon the member's retirement. This fraction would represent the "marital share" of the member's total retired pay. For example, if the former spouse is entitled to half of said marital share, the fraction should be further multiplied by 50 percent. In effect this method gives the former spouse a floating percentage of future retired pay that is proportionate to the marital period. Since this method ultimately results in a percentage, any cost of living increases that the member enjoys also can apply to the former spouse's benefit, if specified in the order. This fractional method may be the only method available to protect the nonmilitary spouse from the effects of inflation and obtain the highest benefit which otherwise would be lost if the fixed dollar amount option is elected, not to mention the inability to share in cost of living increases. Remember, the court may not order a member to retire at a certain time just to bring certainty to the equation.¹²

Application for direct payment of retired pay to former spouses may be made on form DD-2293 and mailed to the military's Defense Finance and Accounting Service.¹³ Forms can be obtained from the same location, the Internet Web site, or any military base.

SSB and VSI

The military has formed a "Selective Early Retirement Board" to deal specifically with "downsizing." For those who have not yet served 20 years in the military, the reduction or downsizing is being accomplished by early separation bonuses, or lump-sum buyouts of their unmatured retirement benefits. If a member elects to take advantage of a "special separation bonus" (SSB) or a "voluntary separation incentive" (VSI), either in lieu of or in addition to retired pay, the military will not pay a former spouse his or her proportionate share unless the state court order so specifies.

Disability

When a member of the military becomes disabled, retired pay is reduced by the amount of disability pay. The net effect to the member is that he or she receives the same amount of money bottom line that would have been received had there been no disability. However, the military will not divide disability pay and since it operates to reduce retired pay to the member, the money available for property division purposes for the nonmember divorcing spouse is reduced by the amount of the disability pay.

Under federal law, a veteran's disability pay or disability allowance is not divisible for property division purposes. A veteran's disability pay is a federally provided replacement for earning capacity lost by reason of injury sustained while in military service. Therefore, such disability allowance is to be considered a part of a spouse's earned income and not an asset of the marital estate to be divided between divorcing parties.¹⁴ Not only are military disability benefits not divisible for property division purposes, they also cannot be made a basis for an off-setting or compensatory award to the spouse - this cannot be done directly or indirectly by state court order or by state legislation.¹⁵

Practice pointer. Since disability pay may be considered only as earned income and not as an asset to be divided between divorcing parties, where appropriate that earned income still is available for consideration of maintenance and/or child support.

Soldiers' and Sailors' Civil Relief Act of 1940

Every order that directs the military to pay a former spouse must indicate that the rights of the member under the Soldiers' and Sailors' Civil Relief Act of 1940¹⁶ have been observed. Reference to this Act indicates that the member is aware of the division of retired pay and either consented to the division of benefits as a result of the divorce proceeding, or was represented by counsel.

Merging Military Credit into Other Retirement Plans

In some circumstances, such as for federal employees, members may forfeit their military service credit and apply the service credit toward other retirement programs. For most members, this is an unlikely choice due to the number of years of service credits and the loss of value in the military benefit. However, in the interest of avoiding potential actions of spite toward a former spouse, it is important to provide for this contingency. A state court order should specify that if the member takes any steps to merge the military pension with another retirement plan of any kind, that retirement plan should be directed to honor the state court order to the extent of the former spouse's interest in the military retirement, and to the extent that the military retirement is used as a basis of payments or benefits under such other retirement plan.

Survivor Benefit Plan (SBP)

Military retired pay is payable to a former spouse only if and when it is paid to the member. This means that if the member dies, all retired pay will cease to be paid to the member and the former spouse. Simply stated, military retired pay terminates on the death of the member.¹⁷ While it is the FSPA that gives the nonmilitary spouse the right to a share of the military retired pay, it is the Survivor Benefit Plan (SBP) that protects the living former spouse after the member dies. Thus, it is necessary to protect against the cessation of retired pay benefits to a former spouse by assuring that the SBP is put in place when dividing the pension.¹⁸

An active duty member elects SBP coverage upon retiring. The reservist has two opportunities to elect SBP coverage for a spouse: 1) when he or she completes 20 years of service; or 2) when he or she reaches age 60.¹⁹ Accordingly, in the case of a reservist, it is necessary to confirm whether the military member has named the former spouse as "surviving spouse" under the SBP if his or her length of service is 20 years or more. (Or if over the 20-year service level at the time of divorce, the right to convert a portion of the retired pay if the member is retired.) This is done by writing to the appropriate branch of service.²⁰ Upon attaining 20 years of service, a reservist may elect coverage, choose to defer the election, or waive coverage completely. The latter is an irrevocable decision that a court order cannot overturn.

If a member previously has named his or her spouse to SBP coverage, divorce will negate that election. The state court marital settlement agreement must include the obligation of the military member to change his or her election from "spouse" to "former spouse." Otherwise, if the member has not yet made an election, a provision should be included to require the member to elect such coverage as soon as the opportunity arises. SBP coverage to the former spouse can be secured as long as the divorce judgment and the state court order provide for it, and the military member voluntarily agrees in writing to provide it, or the former spouse requests to be deemed the beneficiary to the SBP.²¹ If the member has agreed to the coverage and it is incorporated into the divorce judgment and the member then subsequently fails or refuses to make the election to trigger the coverage, on written request from the former spouse, the military will consider that the member is "deemed" to have made the election.²²

It is extremely important to have any SBP election or election change made by the member for the former spouse within one year of the date of divorce. The military has warned that it will not accept any such SBP election or election change that is made after this one-year period, regardless of the court order.

Finally, there can be only one beneficiary under the SBP. Therefore, if a member's first former spouse is awarded the SBP benefit, the member's second former spouse is not entitled to anything after the member's death, even if the second former spouse was married to the member more years than the first former spouse. Factors such as the length of the marriage, how close the member is to retirement, the condition of the parties' health, and whether the member has intentions of remarriage should be considered when negotiating the SBP.

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