Distribution of Military Benefits in Divorce

August 11, 2008 New Jersey Law Journal

Reprinted with permission from the August 11, 2008, edition of the New Jersey Law Journal. © 2008 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

As participation in the military increases and divorce rates continue to rise in the U.S., the issue of military retirement benefits has become increasingly important. Indeed, when a party to a divorce is a member of the military, it is not enough to simply have a property settlement agreement with a broad clause stating that “retirement benefits acquired during the marriage are to be divided equally,” and then direct your favorite domestic relations order company to prepare the appropriate documents. There are particular federal statutes and rules that govern these benefits and time limits, which may prejudice a client’s rights if not strictly adhered to. This article gives a brief overview of the military retirement system as it applies to nonreservists, clarifies some pervasive misconceptions with regard to the equitable distribution of military pensions and briefly discusses the issues of disability pensions and survivor benefits.

Uniformed Services Former Spouses’ Protection Act

In 1982, Congress enacted the Uniformed Services Former Spouses’ Protection Act (USFSPA). This law, in effect, overruled the United States Supreme Court decision in McCarty v. McCarty, which held that federal law precludes a state court from dividing military nondisability retired pay pursuant to state laws. 453 U.S. 210 (1981). The USFSPA provides that a state may equitably divide a military pension upon separation, annulment or divorce. 10 U.S.C. § 1408(c) (1) (2006). The act authorizes division of retirement pay up to 50 percent only if the service member’s domicile state allocates a military pension as property. Over the years since its enactment, however, the USFSPA has spurred much confusion, leading to misconceptions about the entitlement of former spouses to military retirement benefits. In New Jersey, a military pension is divisible. Whitfield v. Whitfield, 222 N.J.Super. 36 (App. Div. 1987); Castiglioni v. Castiglioni, 192 N.J.Super. 594 (Ch. Div. 1984); Kruger v. Kruger, 73 N.J. 464 (1977), rev’d on different grounds.

Many times, a military pension is the most valuable asset in a military divorce. New Jersey attorneys should familiarize themselves with the way in which state courts handle the equitable distribution of military pensions, as well as the allocation of Survivor Benefit Plans, to ensure that a civilian former spouse receives a just share of the marital property.

The Mythical 10/10 Rule

New Jersey courts have discretion to equitably divide military pensions regardless of the length of the marriage. 10 U.S.C. § 1408(d) (2). Yet, many, including seasoned matrimonial attorneys, mistakenly believe that a court may only divide a military pension if the parties to a divorce had been married for at least 10 years concurrently with 10 years of creditable military service.

The USFSPA actually articulates a rule that is far more permissive: that the Defense Finance and Accounting Service (DFAS) will pay the civilian spouse directly only if the marriage lasted 10 years, during which time the member served on active duty (the 10/10 rule). A civilian spouse is still eligible to receive a share of his or her spouse’s military pension if the marriage lasted less than 10 years. However, the DFAS will not forward that share to the civilian spouse. Rather, the service member must pay the civilian spouse his or her share directly.

New Jersey lawyers often believe that a civilian spouse is not entitled to any percentage of the pension if the couple’s marriage lasted less than 10 years, and therefore fail to pursue distribution of a fair share of their client’s most valuable asset. Since this mistake could be detrimental to a client’s future financial well-being, New Jersey lawyers must familiarize themselves with the exact requirements of the 10/10 rule.

Time Limits and Documents Necessary To Distribute the Military Pension

New Jersey courts hold that a pension plan is a marital asset and therefore subject to equitable distribution. However, a court need not impose a Qualified Domestic Relations Order (QDRO) in order to equitably distribute a military pension. Rather, a practitioner simply must file a DD Form 2293, Application of Former Spouse Payments from Retired Pay, along with a copy of the divorce decree or court order, with the DFAS within 90 days immediately preceding its service on a designated agent. The court order or divorce decree must: (1) indicate the date of the marriage; (2) reflect compliance with the service member’s Civil Relief Act, 50 U.S.C. App. § 521(b); (3) indicate that the New Jersey court had proper jurisdiction over the action, 10 U.S.C. § 1408(c)(4); (4) comply with the 10/10 rule, 10 U.S.C. § 1408(d)(2); and (5) indicate the share of the pension to be allocated to the former spouse.

Equitable Distribution of Disability Pensions in New Jersey

Retirement pay that is received from the military as disability payments that commenced solely because of a service member’s disability is not payable to a former spouse. Mansell v. Mansell, 490, U.S. 581, 584 (1989). The USFSPA precludes a state court, within the context of a divorce proceeding, from dividing military disability retirement pay pursuant to state property laws because the USFSPA authorizes that only disposable retired or retainer pay be counted as marital property for equitable distribution. 10 U.S.C. § 1408(a) (4) and (7).

A pensioned spouse may not hinder the ability of the party’s spouse to receive pension payments by voluntarily rejecting, waiving or terminating pension benefits. Torwich v. Torwich, 282 N.J.Super 524 (App. Div. 1995). In Torwich, the court adjusted a property settlement when such disability payments commenced and reduced a civilian spouse’s pension benefits. In that matter, the former spouse’s share of the service member’s retirement benefit was reduced from $249 per month to $97. Citing Clauson v. Clauson, 831 P.2d 1257 (Alaska 1992); and McMahan v. McMahan, 567 So.2d 976 (Fla. Dist. Ct. App. 1990), the court opined that federal law “does not preclude [state] courts from considering, when equitably allocating property upon divorce, the economic consequences of a decision to waive military retirement pay” in order to receive disability pay. Thus, “where a person’s waiver of pension monies while receiving disability pay has a substantial adverse effect on a former spouse’s equitable distribution, exceptional and compelling circumstance require an award to plaintiff of an increased percentage of defendant’s remaining pension payments or some other adjustment to the equitable distribution, as a result of defendant’s receipt of disability pay.”

In our current political environment, it is critical that the attorney for a service member’s spouse anticipate that the service member may suffer injury and retire on a disability pension post-divorce. Inasmuch as equitable division and alimony are intertwined, a carefully worded settlement agreement can leave the door open for a post-judgment application in the event the service member becomes disabled. When an alimony obligation exists, an application for an increase in support should be considered in the event of disability. A property settlement agreement should be clear that the bargained-for overall settlement agreement is based upon the receipt by a former spouse of pension benefits. Obviously, when at all possible, a present value of the service member’s pension should be determined and offset against other assets in equitable distribution.

Survivor Benefit Plans

The Survivor Benefit Plan (SBP), codified in 10 U.S.C. § 1447-1455, was created to allow a service member retiree to elect to provide a monthly annuity to a spouse and/or dependents. A service member may elect a former spouse to receive the annuity. 10 U.S.C. § 1448(b) (3) (A) (II) (2008). However, if the service members elect a former spouse to receive the annuity, he or she is precluded from designating a current spouse. Unlike under the USFSPA, where a court “may treat disposable retired pay...as property,” 10 U.S.C. §1408(c), nothing in the USFSPA grants the same discretion to the states with respect to the award of annuity benefits for former spouses under the SBP. The distribution of the SBP is wholly governed by federal law under 10 U.S.C. § 1447-1455, and is therefore assignable.

If a military retiree, incident to a divorce proceeding, enters into an agreement to elect to provide an annuity to a former spouse, the agreement must be incorporated into the divorce decree. 10 U.S.C. § 1448 (b) (3) (A) (II) (iii). The election also must be in writing, signed by the person making the election and received by the secretary of the appropriate branch of military service within one year after the court enters the divorce decree. If a retiree is required by court order to make such an election, but fails or refuses to do so, under 10 U.S.C. § 1450 (2008), the retiree is deemed to have made the election if the secretary of the appropriate branch of service receives from the former spouse a written request, along with a copy of the court order within one year of the date of the court order.

For those on either side of a military divorce, the issues of equitable distribution of military pensions, disability pensions and survivor benefits must be understood. Proper attention to the rules and regulations as well as the time constraints imposed is critical to protect a client’s rights.