Waiver Of Retired Pay In Exchange For Disability Pay
Before retiring, many service members have the option of waiving a portion of their disposable retired pay and elect, instead, a matching amount in VA disability compensation. The total monthly payment is the same, but the disability component keeps more money in the service members pocket.
The VA disability payment election impacts both spouses. The first has to do with divorce and taxes. For the military spouse, the disability portion is not taxable. This is incentive to waive some of the longevity pension that is disposable retired pay in exchange for disability pay . Another incentive is to prevent the other spouse from receiving any portion of the disability retired pay in an annulment, divorce, or legal separation.
For the other spouse, disability retired pay means less community property is available for division. Arizona law also protects the service members disability benefits from division. In fact, Arizona prohibits the court from attempting to consider disability benefits in property division from indemnifying the other spouse for the service members waiver of disposable retired pay in exchange for disability pay and from making up the difference to the other spouse by awarding him or her income or property belonging to the service member to be more equitable. That is, in order to balance things out between the spouses. Take a look at ARS § 25-318.01:
Lets Discuss The Gi Bill What Is It And How Is It Impacted In A Divorce
The GI Bill is an education program that offers funding for the education the service member or their spouse or child.
It is important to note with the GI Bill, the service member can transfer those benefits to a spouse or child, but NOT a former spouse. So, if the GI Bill funds are earmarked for spouse that will soon be divorced, that spouse needs to make sure those funds are distributed prior to the formal divorce date.
As far as classification of GI Benefits, it is absolutely clear these benefits are considered the separate property of the military spouse. Even if a State Court Order directs the Service Member to transfer those benefits to a spouse or child, there is no mechanism for enforcing this order directly with the military. The only option is to pressure the service member to comply with the State Court orders.
In order to give the court orders teeth regarding GI Bill benefits, the former spouse might consider putting monetary penalties into their settlement agreement, for failure to comply. For example:
Service Member and Former Spouse agree that the GI Bill entitlement shall be used for their Child. If Service Member chooses not to transfer the GI Bill benefits to his/her child, then Service Member shall pay $30,000 to Former Spouse from Service Members bank account.
Child Custody And Visitation
Parents in the military know all too well the unfortunate reality of being away from their kids for significant periods of time. Frequent deployments, irregular schedules, and relocations can all impact child custody/conservatorship and visitation arrangements.
To deal with these unique challenges, its important for you and your spouse to develop custody plans that have built in provisions to deal with reassignments and deployment.
When parents are willing to cooperate, most divorce courts are open to creative custody and visitation schedules.
At Bourlon Law firm, we have extensive experience helping divorcing couples build family care plans to reach consensus. If for some reason the custody negotiations become acrimonious, we will vigorously advocate on your behalf in court.
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Hypothetical Clause In A Qualified Order Dividing Retired Pay
The so-called hypothetical clause refers to the factual details the court must include in the written order for it to serve as a qualified pension division order acceptable to the federal government. If incorrect, ambiguous, or missing information, then the military pension division order will not be in compliance with the USFSPAs hypothetical clause requirement in 10 USC § 1408. The order must also state that the amount to be divided is disposable retired pay as set forth in the NDAA 17s § 641 and as codified in the USFSPAs § 1408. Be mindful that it is the attorneys who draft the proposed court order for the judges signature. Therefore, the responsibility of getting the language of the hypothetical clause absolutely correct lies with the attorneys. Trial experience matters.
What Is A Military Pension
A military pension is a retirement fund that military members receive after a minimum of 20 years of military service. It is different from most other types of pensions in that no borrowing is permitted, it cannot be âcashed outâ early, and you donât have to reach a certain age to receive it. Members who quality for military retirement start receiving it immediately after their retirement.
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How Does That Pension Generally Work
If you entered service prior to January 1st of 2018 but after September 1980, you are probably grandfathered into the High-3 system, where every year of service is worth 2.5 percent of your highest three-year average of your salary . For example:
20 years service x 2.5% x $70,000 High-3 = $35,000/year for retirement pay
If you entered before September of 1980, you are in the Final Pay system-which is the same formula, except instead of using the High-3 to calculate the retired pay entitlement, the Military uses the Service Members Final Pay in the formula .
Military Divorce And The Division Of Retirement Pensions
When married couples decide to go their separate ways, there are important decisions they need to make that can impact the wellbeing of the entire family.
Military servicemembers have to consider laws that dont apply to civilian couples. These laws influence the decisions made around child support and custody, alimony, and the division of assets.
Retirement pensions are assets that can be subject to equitable division in Georgia. Working with an attorney who understands the needs of military couples is the best way to protect your financial interests.
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What Is The Frozen Benefit Rule
The 2017 National Defense Authorization Act , enacted on December 23, 2016, contains a major change in how states are permitted to divide military retirement.
In short, the former spouses share of a military retirement is frozen as of the date of dissolution. The share awarded receives the benefit of COLAs, but excludes any post-decree promotions or longevity increases. .
The term “disposable retired pay”, for purposes of division of retirement, is modified by a new subsection 10 U.S. Code § 1408, which reads:
“For purposes of subparagraph , the total monthly retired pay to which a member is entitled shall be the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the court order, as increased by each cost-of-living adjustment that occurs under section 1401a of this title between the time of the court order and the time of the member’s retirement using the adjustment provisions under that section applicable to the member upon retirement.”
In other words, the spouses share of the retirement is based upon the High-3 pay of the service member at the time of dissolution, plus COLAs, but excluding any other increases.
What About For Those Service Members Who Entered The Military After January 1 Of 2018
If a service member entered service after January 1st of 2018, they would automatically be enrolled in the new Blended Retirement System. This formula is similar to the high-3 formula, except instead of using 2.5% as the multiplier, a reduced percentage of 2% is used. This means the pension system is degraded in value when compared to the high-3 or final pay system. To help soften those reductions, the military makes automatic contributions the TSP account under the Blended Retirement System-contributions that are not provided under the high-3 or final pay systems.
These contributions have a formula of matching. The military will contribute 1% as a base contribution for all service members. For those service members who chose to contribute to their TSP account , the Military will match dollar for dollar up to 3% of base pay. If the service member contributions above 3%, the Military will contribute $0.50 towards every dollar the service member contributes above 3%, up to 5%.
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Va Disability And Divorce In Colorado
The Colorado Court of Appeals has held that courts cannot divide VA disability payments as property in a divorce. Tozer .
That limitation also means that courts cannot do some kind of backdoor division of VA disability benefits at divorce by giving the non-veteran spouse additional property to make up for not receiving a share of the disability payments. In a 2019 unpublished decision, the appellate court upheld a trial court determination that it could not consider a military members VA disability payments for the purpose of awarding the spouse more of other assets:
Thus, courts may not shift marital property to avoid the requirements of the USFSPA or Mansells holding, nor may they financially compensate a former spouse for not receiving a share of the military spouses disability pay.
For a more in-depth discussion of Copeland, see our blog post Veterans Benefits for Divorced Spouses Not Divisible.
Dividing Retirement Assets In A Military Divorce
The division of retirement pensions is limited to non-disability benefits, and many former military servicemembers receive disability compensation. So you should consult with a qualified attorney who can help you determine the best options for your needs.
In order for retirement assets to be divided in a military divorce, you need to make sure that the state court has jurisdiction over the subject matter of your case.
In order for a court to have jurisdiction over the division of military pension, the military servicemember must live in the state of Georgia, be domiciled in Georgia, or consent to the states jurisdiction.
Also, a spouse can only receive a share of the retirement pension when they have been married to a military servicemember for at least 10 years and during the persons active duty.
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How Do You Divide A Pension
Dividing a pension can be done by one of two methods one based on if your spouse is still employed by the employer sponsoring the pension benefit at the time of divorce and the other based on if your spouse has already retired and is receiving the pension benefit at the time of the divorce.
If your spouse is still employed at the time of divorce the court will determine the community portion of the pension benefit by applying a formula that divides the number of months married during employment by the number of months worked for the employer sponsoring the pension benefit at the time of divorce. This result is then multiplied by the value of the monthly pension benefit the employee spouse would receive as of the date of divorce, regardless of whether spouse is actually eligible to retire on that date.
If the spouse is already retired, the court will calculate the community portion of the pension benefit by dividing the number of months married during employment by the total number of months of employment.
What Is The Usfs Protection Act
The Uniformed Service Former Spouses Protection Act was passed by Congress in 1982. It provided ex-spouses of U.S. military members with a share of the members retirement pay.
The aforementioned National Defense Authorization Act added to the legislation, changing the way military retirement pay was divided by freezing it at the time of divorce.
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Military Retired Pay Considerations In Divorce
Understanding the difference between full-time active retired pay and retired pay for a reservist is critical for equitable distribution of this asset.
Ones military retired pay can be valued, with the spouses 1/2 share of the marital portion offset, or it can be divided by a court order where the spouse shares in the monthly retired pay. The retired pay is paid for life but often valued incorrectly by some as the retirement ages are different and the calculation of the monthly retired pay is different. Both ReservistNational Guard and Full-Time Active Members are required to accrue 20 years of service, known as cliff vesting. Most states view pensions as marital assets regardless of vesting but there are other considerations to be made. This is where a court order division might come in versus a value and offset approach.
Understanding Divorce In The Military
Some of this content is provided courtesy of USAA.
Legally, military personnel who are getting divorced are no different than anyone else, so the procedural process is the same. If you are in the military or are a military spouse, there are some additional factors that can affect your divorce.
For instance, the process may take longer if one of you is on active duty in a remote area or have a permanent station overseas. Some states have relaxed the residency requirements for active duty service personnel who want to file for divorce in the state he or she is stationed.
Besides understanding the basic divorce process, military couples should be knowledgeable about the role of the Uniformed Services Former Spouses’ Protection Act. The USFSPA provides a federal statute for the military, guiding them to accept state statutes on addressing issues, such as child support, spousal support and military retirement pay/pension. While states have always had the authority to treat retirement and pension plans just like any other marital asset, the USFSPA permits the states to classify military retired pay as property, as opposed to income.
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How Long Does A Military Spouse Receive Pay After Divorce
If your former spouse is entitled to a portion of your military retirement pay, then they will continue to receive this payment until one of you passes away. If you die before your ex, then their benefits will stop. However, remarriage does not affect their right to a portion of your military pension if it was awarded in a divorce.
Community Property Fraction Of Military Retired Pay
To determine the community property portion of military retired pay, take the marital pension service and divide it by the total pension service as of the divorce date. Multiply the disposable retired pay by this community fraction. The result is the marital portion of disposable retired pay to be divided equally between the spouses.
Although the divisible marital portion of the military pension is determined as a fraction, thats not the only option for the order. The parties could set the former spouses share as a fixed dollar amount, percentage, formula, or hypothetical with contrived rank with manufactured years of service.
Generally, with divorces filed in Arizona, for example, the accumulation of months of marital pension service stops on the date the case commences. That is when the petition for dissolution of marriage is filed and served on the other spouse if it results in dissolution of marriage. ARS § 25-211. Recall, too, that with pensions for those in the National Guard and Reserve, the community fraction is determined using retirement points, not months of service.
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When Can You Get Your Retirement Share
If you take a lump sum buyout of your share in your military spouse’s retirement, you’ll receive that when you settle your divorce. If you don’t, you’ll be waiting to get your share later — but what does later mean? Your spouse may continue working for many years after becoming eligible for retirement benefits, while you may want to start receiving your share of those benefits as early as possible. In many states, you’ll be able to include a provision in your divorce judgment that says you’re entitled to receive your share as soon as your former spouse becomes eligible for retirement. This should be a date you can figure out and include in your judgment.
How Is Military Retirement Divided When Retired Service Members Are Divorced
When retirement pay needs to be divided after a divorce and the service member is already retired, the court will use the Hunt/Gallo formula.
Using this formula, the marital portion of the retirement is calculated as follows:
Months of marriage overlapping serviceTotal months of military service at retirement
The formula applies to all defined benefit plans as well as military retirements when the member is already retired at the time of divorce.
It does not apply to defined contribution retirement plans, such as IRAs, TSPs, 401s, etc.
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Estimating Military Retired Pay
*Mr. Sullivan is a retired Army Reserve JAG colonel. He practices family law in Raleigh, North Carolina and is the author of The Military Divorce Handbook and many internet resources on military family law issues. A Fellow of the American Academy of Matrimonial Lawyers, Mr. Sullivan has been a board-certified specialist in family law since 1989. He works with attorneys nationwide as a consultant on military divorce issues in drafting military pension division orders. He can be reached at 919-832-8507 and at law@ncfamilylaw.com.
Military Retirement Upon Death Of Retiree Or Former Spouse
Can the former spouse bequeath his/her share of retirement upon death? No – if the former spouse dies, that person’s share of the retirement reverts back to the retiree, until the death of the retiree. Federal law provides: “this section does not create any right, title, or interest which can be sold, assigned, transferred, or otherwise disposed of by a spouse or former spouse.”10 U.S. Code § 1408.
What happens to the retirement benefits upon death of the retiree? Military retirement payments to a former spouse cease upon the retiree’s death. For this reason, the court will often order the retiree to protect the income flow by electing the Survivor Benefit Plan for the former spouse.
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