Historically, military retirement pay was not divisible in a divorce or dissolution, meaning that no divorce court could award a share of it as part of a property division. Congress changed this rule by enacting the Uniformed Services Former Spouses’ Protection Act (USFSPA), codified at 10 U.S.C. § 1408, allowing the division of military retirement pay in a divorce, but specifically prohibiting the division of VA disability pay. Thus, today, when dividing property of divorcing military couples, courts routinely divide military retirement benefits, even if they will be awarded in the future.
A problem occurs when a divorced military member receiving retirement is awarded disability pay arising from military service. Military members usually seek to convert retirement pay to disability for tax reasons. Under current law, when a retired military member is awarded partial disability, any monthly retirement pay being received is reduced by the amount of disability paid each month. In these cases, the divorced spouse will see his or her monthly share of retirement pay reduced as well.
As a result, the divorce court’s original property division of the retirement benefit is frustrated (because a lesser amount is now being paid), but under the USFSPA, the court may not simply award part of the disability pay. The issue is whether (and, if so, how) a court can enforce its original property division without running afoul of the USFSPA.
The Lawyer’s Trap— State Courts Are Split
Although USFSPA is a federal law that should be applied uniformly, the state courts have, for years, differed wildly in their interpretation and application of it. The U.S. Supreme Court, despite several appeals to resolve this issue, has decided not to intervene to settle the state court splits.
Some states (such as Vermont and North Carolina) strictly apply the USFSPA and prohibit a divorce court from awarding any share of disability payments. In these cases, former spouses who have seen their share of the retirement pay reduced are often without a remedy.
Other states (such as Alaska and Arkansas) prohibit the division of disability payments, but would allow the court to grant another form of relief (such as increased spousal support) to make up for the difference in lost benefits.
Still other courts (such as Arizona and California) have ruled that a military member may not unilaterally reduce a former spouse’s share of retirement benefit by converting them to disability, and thus courts in these states have ordered the military member to reimburse the former spouse for the reduced benefit, even if that reimbursement must be paid from the disability.
Avoid the Pitfalls
Know your state. Because the states are split, and the U.S. Supreme Court has so far decided not to resolve this issue, you must know how your state will handle the division of disability benefits in a divorce. Understanding this issue now will save you headaches later.
Reserve jurisdiction. Understand that state courts may not have the authority to alter the prior divorce decree (even in those states that would otherwise sidestep the USFSPA) unless the court has retained jurisdiction over the divorce, the property division, or spousal support. The reservation of jurisdiction may be particularly important to the interests of the former spouse.
Think indemnification (or not). Some courts have held (or suggested) that the USFSPA may be avoided if the military member has agreed to indemnify the former spouse for any reduction in benefits. Depending on whether you represent the military member or former spouse, an indemnification clause may be appropriate (or something to avoid).
Specific amounts vs. percentages. Courts often award each spouse a percentage share of the retirement pay. Instead of percentages, think about seeking a flat amount per month from the retirement. That way, even if retirement pay is reduced, it may not reduce the amount to be paid to the former spouse.
Understanding the impact of the USFSPA in the divorce of a military couple is key to adequately representing the interests of clients.