Military Retirement generally consist of a pension/annuity that is earned after twenty years of military service in one of the United States military branches: Air Force, Army, Marine Corps, Navy, Space Force, Coast Guard and National Guard. Additionally, the Commissioned Corps of the U.S. Public Health Service also may have a military retirement/pension. Service members are also eligible for the Thrift Savings Plan (TSP).
Military Retirement Deeper Dive
Under the United States Former Spouses Protection Act (USFSPA), state courts are able to treat disposable retired pay as marital property. Under 10 U.S.C. § 1408(a)(4)(A)(ii), the term “disposable retired pay” is defined as the total monthly retired pay to which a member is entitled, less amounts which are deducted from the retired pay as a result of a waiver of retired pay required by law in order to receive compensation under Title 38. Therefore, disability compensation is exempt from the definition of “disposable retired pay.” Further, in the case of a member entitled to retired pay under Chapter 61, “disposable retired pay” is the total monthly retired pay to which the member is entitled, less amounts which are equal to the amount of retired pay of the member under Chapter 61 computed using the percentage of the member's disability on the date when the member was retired (or the date on which the member's name was placed on the temporary disability retired list). See 10 U.S.C. § 1408.
Service members who have served in the Armed Forces for a specific amount of time, usually at least twenty years, are eligible to receive retired pay at retirement. The amount the individual receives depends on rank and years served. 10 U.S.C. § 7311 (Army Retirement Benefits); 10 U.S.C. § 8323 (Navy and Marine Retirement Benefits); 10 U.S.C. § 9311 (Air Force and Space Force Retirement Benefits). Service members who have become disabled because of serving in the military are eligible for disability pay. 38 U.S.C.§ 1114 (wartime disability); 38 U.S.C. § 1134 (peacetime disability). "In order to prevent double dipping, a military retiree may receive disability benefits only to the extent that [the service member] waives a corresponding amount of [the service member's] military retirement pay." Mansell v. Mansell, 490 U.S. 581, 583, 109 S. Ct. 2023, 104 L. Ed. 2d 675(1989); 38 U.S.C. § 5305.
The United States Supreme Court first addressed military retirement pay in McCarty v. McCarty, 453 U.S. 210, 101 S. Ct. 2728, 69 L. Ed. 2d 589 (1981). In that case, the United States Supreme Court held "that the federal statutes then governing military retirement pay prevented state courts from treating military retirement pay as community property" in a divorce. Mansell, 490 U.S. at 584. They reasoned that Congress seemed to intend for military retirement pay to "reach the veteran and no one else," but they acknowledged that Congress could change the statutory framework with legislation. Id.
In response to McCarty, Congress enacted the Former Spouses' Protection Act (FSPA), allowing state courts to use "disposable retired pay" or "retainer pay" as community property in a divorce. Mansell, 490 U.S. at 584; 10 U.S.C. § 1408. "[A] court may treat disposable retired pay payable to a member . . . either as property solely of the member or as property of the member and his spouse in accordance with the law of the jurisdiction of such court."5 10 U.S.C. § 1408 (c)(1). In Virginia, military retirement pay is considered marital property if it was earned while the couple was married. Va. Code Ann. § 20-107.3 (G)(1) (2019).
The United States Supreme Court then addressed in Mansell the question of "whether state courts, consistent with the federal Uniformed Services Former Spouses' Protection Act, (internal citation omitted), may treat as property divisible upon divorce military retirement pay waived by the retiree in order to receive veterans' disability benefits." Mansell, 490 U.S. at 583. The Court held "that the Former Spouses' Protection Act does not grant state courts the power to treat as property divisible upon divorce military retirement pay that has been waived to receive veterans' disability benefits." Id. at 594-95. Justice O'Conner in her dissent adequately opined, "The harsh reality of this holding is that former spouses . . . can, without their consent, be denied a fair share of their ex-spouse's military retirement pay simply because he elects to increase his after-tax income by converting a portion of that pay into disability benefits." Id. at 595 (O'Conner, J., dissenting).
Based upon the holding in Mansell, many states began making distinctions between when a court ordered the military retirement to be divided as marital divisible property versus when the parties agreed to the division in a property settlement agreement, particularly when the parties used a guarantee or indemnification clause within the property settlement agreement. Virginia was one of these states. Owen v. Owen, 14 Va. App. 623, 419 S.E.2d 267, 8 Va. Law Rep. 3441 (1992); McLellan v. McLellan, 33 Va. App. 376, 533 S.E.2d 635 (2000).
In Owen, the Virginia Court of Appeals specifically addressed the issue of "whether parties may use a property settlement agreement to guarantee a certain level of income by providing for alternative payments to compensate for a reduction in payment level based on a reduction in retirement benefits." 14 Va. App. at 626, 419 S.E.2d at 269.
The Court held that "[s]uch an arrangement does not offend the federal prohibition against a direct assignment of military disability pay by property settlement agreement," id., and held "that federal law does not prevent a husband and wife from entering into an agreement to provide a set level of payment, the amount of which is determined by considering disability benefits as well as retirement benefits," id. at 628, 419 S.E.2d at 270. Since 1992, this has been the law in Virginia.
However, in 2017, the United States Supreme Court revisited the issue of division of military retirement pay after a veteran waived a portion of retirement pay in order to collect service-related disability pay. In Howell v. Howell, the parties divorced while the service member was still serving in the Air Force. 137 S. Ct. at 1404. Anticipating his future retirement, the trial court treated the service member's future retirement pay as community property. The trial court ordered him to pay 50% of his military retirement to his former spouse. Id. Several years after the service member had been receiving retirement pay, the Department of Veterans Affairs found the service member to be 20% disabled. He chose to waive the retirement amount for his disability amount, which effectively lowered the amount of retirement pay he received each month and, thus, lowered his payment to his former spouse. Id. The former spouse asked the trial court to enforce the original decree, requiring the service member to "reimburse" or "restore" to her the original amount. The trial court held "that the original divorce decree had given Sandra a 'vested' interest in the prewaiver amount of that pay" and ordered the service member to pay the original amount, despite the reduction due to the disability pay. Id. On appeal, the Arizona Supreme Court affirmed the trial court's decision, relying on the fact that the service member had obtained a waiver for disability pay after the trial court's original order had been entered. Id.
The United States Supreme Court, however, disagreed. Justice Breyer, writing for a defacto unanimous court, found that the holding in Mansell still applied. "[F]ederal law completely pre-empts the States from treating waived military retirement pay as divisible community property." Howell, 137 S. Ct. at 1405. The Court pointed out that several other state courts had focused on when the waiver had occurred. However, the Court called this distinction only a "temporal difference." Id.
[T]he temporal difference highlights only that John's military retirement pay at the time it came to Sandra was subject to later reduction (should John exercise a waiver to receive disability benefits to which he is entitled). The state court did not extinguish (and most likely would not have had the legal power to extinguish) that future contingency. The existence of that contingency meant that the value of Sandra's share of military retirement pay was possibly worth less—perhaps less than Sandra and others thought—at the time of the divorce. So too is an ownership interest in property (say, A's property interest in Blackacre) worth less if it is subject to defeasance or termination upon the occurrence of a later event (say, B's death). (citation omitted). Id. The Court further stated that the former spouse's interest in the military retirement pay was "at most, contingent, . . . ." Id. at 1406. Additionally, the Court indicated that requiring an individual to "reimburse" or "indemnify" a party due to the disability election rather than outright demand a party to pay the military retirement is "semantic and nothing more." Id. "State courts cannot 'vest' that which (under governing federal law) they lack the authority to give." Id. at 1405. The basic reasons McCarthy gave for believing that Congress intended to exempt military retirement pay from state community property law apply a fortiori to disability pay. (citation omitted). And those reasons apply with equal force to a veteran's post-divorce waiver to receive disability benefits to which he or she has become entitled. Id. In other words, Congress intended that disability pay reach the veteran and no one else. The Court acknowledged the "hardship that congressional pre-emption can sometimes work on divorcing spouses." Id. at 1406. However, it expressed that trial courts "remain free to take account of the contingency that some military retirement pay might be waived, or, . . . take account of reductions in value when it calculates or recalculates the need for spousal support." Id. (citing Rose v. Rose, 481 U.S. 619, 630-34, and n. 6, 107 S.Ct. 2029, 95 L.Ed.2d 599 (1987); 10 U.S.C. §1408(e)(6)). Since Howell, states have been grappling with its influence. As many states have acknowledged, the United States Supreme Court did not explicitly deal with the issue of guarantee or indemnification clauses in property settlement agreements, nor did it explicitly address the issue of res judicata. However, states have taken the "indemnify" and "vested interest" language in Howell and have applied it to bargained-for terms of guarantee clauses and indemnification clauses in property settlement agreements. See Vlach v. Vlach, 556 S.W.3d 219, 224-25 (Tenn. Ct. App. 2017) ("[I]n Howell, the Supreme Court held that both the vested interest approach and the reimbursement or indemnification approach were impermissible."); Mattson v. Mattson, 903 N.W.2d 233, 241 (Minn. Ct. App. 2017) ("Howell effectively overruled cases relying on the sanctity of contract to escape federal preemption."). . .
"Congress wrote that a State may treat veterans' disposable retired pay' as divisible property, i.e., community property divisible upon divorce." Howell, 137 S. Ct. at 1403 (citing 10 U.S.C. § 1408(c)(1)). "But the new Act expressly excluded from its definition of 'disposable retired pay' amounts deducted from that pay 'as a result of a waiver . . . required by law in order to receive' disability benefits." Id. (citing10 U.S.C. § 1408(a)(4)(A)(ii)). . .
However, as previously stated, a court must first classify what type of pay a service member is receiving according to federal law: VA Disability Compensation, CRSC, or CRDP. CRSC and CRDP were "created by Congress to allow eligible military retirees to receive monthly entitlements in addition to retired pay." CRDP is for service-related disabilities and is not disability pay. Rather, it is a restoration of retired pay, subject to division with a former spouse. 10 U.S.C. § 1414. . .
Survivor Benefit Plan (SBP):
The SBP is an annuity plan that can be awarded to the surviving spouse that provides a 55% benefit of the military retirement benefits in the event of the death of the retired service member. In a divorce case SBP generally must be ordered within one year of the divorce judgment being signed.