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Military pension benefits are marital property subject to division and distribution in a divorce. The law of the state granting the divorce – that is, the place with jurisdiction -- controls the division of the pension as well as all the other property involved in the action.
No one gets “a military divorce”; the action is said to be “military” when one of the parties is the service member in the military and a state court divorces him or her from a spouse guided by state law and the Uniformed Services Former Spouses’ Protection Act (USFSPA). State law determines the jurisdiction of the court over the parties in the action.
Unlike civilians who often own a house, many service members do not own a marital home that can be divided in a divorce. A service member’s retirement pay and benefits very often are the largest assets that he or she shares in the action. Both active duty and reservists are fully vested after 20 years of service. Active duty military personnel can retire after 20 years of service at any age; reservists and National Guard must have 20 years of service and be 60 to receive monthly benefits. The military has what is called “a 20-year cliff” vesting schedule, which means that a service member who leaves the military prior to 20 years loses all benefits.
The Uniformed Services Former Spouses’ Protection Act (USFSPA) (Title 10 U.S.C. § 1408) controls the division of military retired pay in a divorce. In addition to providing medical and commissary benefits to a former spouse, USFSPA provides for the direct payment of retirement benefits to a former spouse of a retiree when 1) the payment does not exceed 50 percent of the service member’s disposable retired pay; 2) the duration of the marriage and years of creditable service over-lap by at least 10 years; and 3) the court has jurisdiction over the service member. The court cannot treat military retired pay as property without such jurisdiction.
In order for a former spouse to receive payments directly from the Defense Finance and Accounting Service (DFAS) pursuant to an award for equitable distribution, the parties must have been married 10 years with 10 concurrent years of military service. However, a former spouse who is not eligible for DFAS direct pay pursuant to an equitable distribution award may still be eligible for direct payment from DFAS if the award is expressed as spousal support. In order to do so, the criteria must be included as part of the divorce settlement agreement. Moreover, the award of military retired pay may be in addition to child support and alimony. The 50 percent share limit may be increased when the service member is paying child support. The maximum combined amount that can be deducted is 65 percent of the disposable retirement pay.
USFSPA permits only the division of "disposable retired pay,” which is the service member’s total monthly retired pay minus money owed for any overpayments or repayments, deductions for fines in a court martial, deductions for group life or health insurance premiums, and most importantly, disability pay benefits or premiums for the Survivor Benefit Plan (SBP). Disability pay is not subject to division and distribution in a divorce. So in any order dividing benefits, the phrase “disposable retired pay” must be used so that it is clear what is being divided.
In a divorce, a court order directs the DFAS to make payments to the nonmember spouse. DFAS follows the shared payment approach, which means the alternate payee – the nonmember spouse, who is usually the wife -- shares a portion of the service member’s benefits when he or she retires. In this situation, the alternate payee must wait until the service member retires before she receives her share of the benefits. Once benefits commence they are payable to her for the service member’s lifetime. Further, because the nonmember spouse’s share of the benefits is not actuarially adjusted to her life expectancy, her share of the benefits reverts to the service member upon the her death.
Normally, the spouse receives payments when the service member former spouse actually retires, and the benefits to both stop when the service member dies. The former spouse, however, may be designated the beneficiary of a Survivor Benefit Plan (SBP). However, for a non-member spouse to be eligible for survivor benefits, DFAS must receive a Military Order within one year after the divorce. Failure to do so means that nonmember spouse loses eligibility for the SBP. Further, DFAS will not accept the Order if the court stamp, or seal, is more than 90 days old. If DFAS dos not receive the order in 90 days, a copy of the divorce decree with a more recent stamp will have to be obtained. A spouse who was the beneficiary of a SBP during the marriage does not automatically remain so upon divorce, so the SBP must be negotiated in the divorce settlement. Under the military system only one beneficiary may be named under the SBP.
DFAS begins payments to the ex-spouse three months after the Military Order is filed when the service member is already receiving a pension. Payments to newly retired members begin 90 days after the service member becomes eligible to receive his or her first payment.
From time to time, the military stages a reduction in force, which means that career military people are separated from the service involuntarily. Members with fewer than twenty years of service may be released and compensated with severance known Voluntary Separation Incentive (VSI), severance pay, not retirement pay. Like disability pay, VSI is not divisible unless the court determines it is marital property. USFSPA does not apply to VSI but only to retired pay.
Unlike QDROs used in connection with the division of pensions protected by ERISA, a service member can take certain actions that work to the disadvantage of their nonmemmber spouses, such as opting for disability in place of retired pay or taking VSI. “While these alternative forms of pay may be deemed a marital asset by the state courts, the nonmember spouse can only receive his or her portion through direct payments made by the member,” writes one pension expert. However, courts consider an award of a share of military retirement a nondischargeable debt, just like support obligations. The service member cannot escape his responsibility by filing for bankruptcy; he still owes the other spouse a share of the pension.
There are many ways a service member can alter retired pay to the disadvantage of the non-service member. For example, a service member whose disability begins after the divorce can opt for a lump sum disability payout that reduces or eliminates pension payments. A Maryland appellate court ruled that the former wife of a service member discharged on permanent disability was entitled to her share of the lump sum that her husband elected to receive instead of his pension. The court said that benefits are not included in pension payments. Because the court ordered the husband to pay the wife out of his assets generally, not specifically out of the disability award, it said the payment did not violate the rule on disability pay. Some courts, moreover, require that a service member compensate a former spouse for any reduction he causes in the retirement benefits subject to division in a divorce.
The percentage of the pension to which the former spouse is entitled may be calculated in one of three ways. They are
The nonmember spouse may wait for her share of the benefits when the service member retires, or accept a lump-sum buyout either for cash or in trade for other marital assets at the time of divorce. Some lawyers advocate a lump sum at divorce instead of continuing connection in a situation with so many unpredictable variables, such as the service member’s survival until retirement, his eligibility for retirement, and rank and pay grade at the time of retirement. Some courts adopt a “wait and see” attitude in deciding the distribution of benefits. In this way, the court retains the right to decide at the time the service member is eligible for retirement or actually retires, whichever comes first. However, this means ex-spouses can look forward to additional legal fees and engagement with each other at some unknown future date -- not a prospect most divorcing spouses enjoy.
Some service members opt for the retirement plan called REDUX, which applies to all members who joined on or after August 1, 1986 and gives the service member the option of taking a midcareer bonus, called a Career Status Bonus (CSB) of $30,000 when the service member reaches 14½ years of service. In exchange, the service member takes a reduction in pension benefits and a commitment to 20 years of service. According to DFAS, CSB is a bonus, and it is not divisible in a divorce, but state courts say otherwise, ruling that any reduction the service member causes in the retirement benefits to which nonmember spouse is entitled requires compensation. However, a service member who becomes eligible for the CSB after the divorce is final (but before he retires) could shortchange his spouse. Lawyers advise that the marital settlement agreement or judgment requires that the service member must inform his spouse -- and compensate her-- if a CSB comes into play.
Courts treat a Thrift Savings Plan (TSP) the same as they treat a 401(k). The court order dividing the TSP has specific requirements that differ from a QDRO, but the TSP is a defined contribution plan subject to division in a divorce.
In addition to retirement pay, service members and former spouses share other benefits. Military spouses married to a service member for at least 20 years while he or she served for the same period of time are eligible for full health insurance coverage for life. These health benefits include Tricare, inpatient and outpatient care coverage, and full commissary privileges. These benefits and privileges are reduced to one year for spouses with 20 years of service but a marriage that only overlapped military service for 15 years. Spouses who do not meet the 20- or 15- year marriage rule requirement lose coverage after a divorce becomes final.
