A ‘military’ divorce

Accurate dispensation of legal advice is never easy. What makes sense in the present, may not prove to be an accurate anticipation of future changes in the law. A recent shocking lesson being taught by the United States Supreme Court to the community of divorce lawyers.

Typically, one of the largest assets in a “military” divorce (where one of the spouses is or has been active duty) is the generous retirement offered by our government to our service members. Eligibility is triggered by 20 years of active duty service, irrespective of biological age, and comes with health insurance for life. For those who enlist at a relatively early age, this can open a window to a full second career and second retirement. While building this 2nd career, a very decent monthly retirement pension for life brings with it all wonders of creativity and freedoms. A valuable asset to say the least!

When divorce comes, the service member is loathe to want to give an ex-spouse a share. States uniformly classify this pension as “marital property” (to the extent that service years accrued during the marriage), subject to some sort of division. Some states might require a 50/50 split; Georgia uses the legal term of art “equitable division” meaning what is fair. But, it is definitely “in play” in every state when tallying up how to divide marriage assets.

Formulas (although not required) are generally used to divide a miliary pension. The most common employed (and one that the Federal government authorizes) is to divide one-half of the years of service during the marriage, by either 20 (years for eligibility for retirement) or the years of total accrued service, if more than 20 years. Hence, if a couple has been married for 20 years, the service member has not yet retired, and 15 years of the marriage overlapped with accrued military service time, 15/20 = .75 and divided that by 2 and you get 37.5%, as an ex-spouse’s share of the pension.

The agency charged with allocating retirement is the Defense Finance and Accounting (DFAS). In 1981, Congress passed the Uniformed Services Former Spouses’ Protection Act (USFSPA) to set some ground rules on how DFAS could let states divide retirement pensions. Prior to doing so, the Supreme Court held that Federal law preempted State divorce courts and final decrees allocating a share of retirement to ex-spouses were unenforceable because of “federal preemption.”

These rules are very useful and, once you learn them, clients can receive sound legal advice. One rule is that DFAS will only send the dependent spouse up to 50% of the “available” retirement. USFSPA is silent on how to divide it, each state court in each divorce decides how much. The formula above is almost always used, but in the scenario described nothing prohibits an award of a full 50% share of the pension, even if the formula would suggest only 37.5%.

Retirement does not even need to be paid directly from DFAS; its nice when you can, as it eliminates having to find your ex-spouse after a divorce to make him or her pay out a portion of the pension. A marriage lasting 10 years with at least 10 years of active duty service time during the marriage qualifies for direct payment to an ex-spouse. A marriage of at least 20 years with overlapping 20 years of active duty service time is a huge bonus as it “vests” the ex-spouse with a share of the pension.

Divorce attorneys, have learning the lessons of USFPSA over the years, have devised supposed “rock-solid” final decrees and military pension orders to protect both parties to a divorce. The recently decided unanimous Supreme Court opinion rendered in Howell v. Howell has added an unfortunate wrinkle to USFPSA and its rules.

A service member has the right to “waive” a percentage of any retirement (to the extent of a disability percentage finding) and recategorize it as “disability,” where no taxes are paid as a disability award. Frankly, given some of the stresses of military service, it is almost impossible to not have some percentage of service related disability. This makes it rare to have a service member not reclassify some percentage of retirement as disability. This waiver election is also something that can change over time, even after retirement checks start coming. Hence, it is hard to predict the “available” retirement, in a present sense, as against what might happen in the future, if reclassification is an open option.

To add some certainty to an ex-spouse’s award of a service member’s military pension, divorce attorneys crafted various iterations of language preventing the service member from using the waiver to “hide” a share of their pension check from equitable division. This language would prohibit the service member from reducing the available retirement pie, through a disability waiver, to the detriment of an ex-spouse. Because the language would be directed at the service member’s actions, as opposed to DFAS, the state court would have the power to enforce it as a contempt.

Well, this sounded like a great theory, until the Supreme Court nixed it in Howell. What the justices held is that retirement pay reclassified as disability is shielded from the arm of state courts – that whole federal preemption legal theory. Contempt no longer seems an option.

The practical consequences of this new opinion on ex-spouses could be devastating. Many waived any claim to alimony, other property division calculations, or other forms of retirement, because of what they anticipated receiving in military pension. State courts will be left faced with a Gordian’s Knot of pathways to reach an equitable result for complaining ex-spouses. Welcome to a lawyer’s hell!

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