Military Pension divided? Not so fast
The United States Supreme Court has just ruled in Howell v. Howell. (May 15, 2017)
First the set up. Husband and wife are married for 20 years and the husband is in the military for 20 years. Husband retires from the military. Under the existing law, wife would get 50% of the military retirement. This is divided by the time rule or the length of marriage divided by the years in the service. Assume, that husband gets $1000 per month in military retirement, Wife would get 50% or $500 per month. Pretty easy right.
Hold on: This gets better.
Now, 5 years after judgment of dissolution. Husband has been retired and they are splitting the retirement 50% each. Husband goes down to the VA and they declare that he is disabled and requests VA disability. In order to receive the VA disability, the husband must waive a portion of the retirement pay in order to receive the disability pay. You see, he wants the VA disability pay because it is non-taxable. There is also another reason. Lets say he gets $500 from the VA disability. He must waive $500 of military retirement to get the VA disability, so now he still gets $1000 ($500 from VA and $500 from military retirement) however, it is argued that wife only gets 50% of his military retirement. So under these facts, wife's entitlement to the military retirement is now only $250 per month or 50% of the military retirement.
Depending on which side you stand, you may ask: How is this fair?
Now the history. The Federal Government has long provided retirement pay to those veterans who have retired from the Armed Forces after serving, e.g., 20 years or more. It also provides disabled members of the Armed Forces with disability benefits. In order to prevent double counting, however, federal law typically insists that, to receive disability benefits, a retired veteran must give up an equivalent amount of retirement pay. And, since retirement pay is taxable while disability benefits are not, the veteran often elects to waive retirement pay in order to receive disability benefits.
In 1981 the Supreme Court considered federal military retirement pay alone, i.e., not in the context of pay waived to receive disability benefits. The question was whether a State could consider any of a veteran’s retirement pay to be a form of community property, divisible at divorce. The Court concluded that the States could not. The court noted that the relevant legislative history referred to military retirement pay as a “‘personal entitlement.’”. The court added that other language in the statute as well as its history made “clear that Congress intended that military retired pay ‘actually reach the beneficiary.’” We found a “conflict between the terms of the federal retirement statutes and the community property right.” And the court concluded that the division of military retirement pay by the States threatened to harm clear and substantial federal interests. Hence federal law pre-empted the state law.
This did not last long. In 1982 Congress responded by passing the Uniformed Services Former Spouses’ Protection Act. Congress wrote that a State may treat veterans’ “disposable retired pay” as divisible property, i.e., community property divisible upon divorce. 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.
in 1989, the court heard the case of Mansell v. Mansell. Major Gerald E. Mansell and his wife had divorced in California. At the time of the divorce, they entered into a “property settlement which provided, in part, that Major Mansell would pay Mrs. Mansell 50 percent of his total military retirement pay, including that portion of retirement pay waived so that Major Mansell could receive disability benefits.” The divorce decree incorporated this settlement and permitted the division. Major Mansell later moved to modify the decree so that it would omit the portion of the retirement pay that he had waived. The California courts refused to do so. But the Supreme Court reversed. It held that federal law forbade California from treating the waived portion as community property divisible at divorce.
The facts of the Howell case are: In 1992 John retired from the Air Force and began to receive military retirement pay, half of which went to Sandra. About 13 years later the Department of Veterans Affairs found that John was 20% disabled due to a service related shoulder injury. John elected to receive disability benefits and consequently had to waive about $250 per month of the roughly $1,500 of military retirement pay he shared with Sandra. Doing so reduced the amount of retirement pay that he and Sandra received by about $125 per month each. Sandra then asked the Arizona family court to enforce the original decree, in effect restoring the value of her share of John’s total retirement pay. The court held that the original divorce decree had given Sandra a “vested” interest in the prewaiver amount of that pay, and ordered John to ensure that Sandra “receive her full 50% of the military retirement without regard for the disability.”
The court held: In Mansell, the Court held that federal law completely pre-empts the States from treating waived military retirement pay as divisible community property. Yet that which federal law pre-empts is just what the Arizona family court did here. Finding that the divorce decree gave Sandra a “vested” interest in John’s retirement pay and ordering that Sandra receive her share “without regard for the disability”. We see nothing in this circumstance that makes the reimbursement award to Sandra any the less an award of the portion of military retirement pay that John waived in order to obtain disability benefits. And that is the portion that Congress omitted from the Act’s definition of “disposable retired pay,” namely, the portion that federal law prohibits state courts from awarding to a divorced veteran’s former spouse. That the Arizona courts referred to Sandra’s interest in the waivable portion as having “vested” does not help. State courts cannot “vest” that which they lack the authority to give. Accordingly, while the divorce decree might be said to “vest” Sandra with an immediate right to half of John’s military retirement pay, that interest is, at most, contingent, depending for its amount on a subsequent condition: John’s possible waiver of that pay. We recognize, as we recognized in Mansell, the hardship that congressional pre-emption can sometimes work on divorcing spouses. But we note that a family court, when it first determines the value of a family’s assets, remains free to take account of the contingency that some military retirement pay might be waived, or, as the petitioner himself recognizes, take account of reductions in value when it calculates or recalculates the need for spousal support.
The US Supreme Court did not discuss the CA case that deals with this. Marriage of Krempin. Ex-wife brought post-dissolution motion to enforce a provision of stipulated judgment that gave her a 25% share of ex-husband's military pension, after ex-husband waived all pension benefits in order to receive disability benefits, thus reducing pension payments to ex-wife to zero. The court held Mansell decision, which interpreted the federal Uniformed Services Former Spouses' Protection Act as prohibiting state courts from treating military retirement pay waived by the retiree in order to receive disability benefits as community property divisible upon divorce, does not apply to postdissolution waivers of retirement pay.
So, Now what? The US Supreme Court said that the time of the waiver does not really matter and said that Mansell would still apply. This case dealt with a case from Arizona but many other cases from other states had similar rulings. Quite frankly, the precedence from the US Supreme Court should prevail. Apparently there are proposed bills in both the House and the Senate regarding this issue.
If you are a former military spouse, you better read the opinion here.