If you have service members, spouses of service members, or service member retirees as clients, then you need to be aware of three major changes in military family law in 2018: (1) the change to the definition of “disposable military retirement pay” pursuant to the National Defense Appropriation Act (NDAA) of 2017; (2) the ruling in Howell v. Howell, 581 U.S. ______ (2017) addressing court-ordered indemnification; and (3) the Blended Retirement System (BRS) becoming mandatory.
The first change concerns the definition of “disposable military retirement pay,” and it has the most immediate impact on family law practitioners. Prior to November 2017, dividing military retirement pay was done like any other defined benefit plan. You would divide the total months of military service overlapping marriage by the total months of military service, dividing the quotient by 2, and converting the resulting quotient to a fraction. For example, if the parties were married for 10 years and the service-member (SM) served for 20 years, the percentage of disposable military retirement pay payable to the spouse would be 25 percent: (120 months/240 months)/2 = .25, or 1/4.
This is no longer the end of the division for military retirement. Now, you take your number and cap it at “the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the court order, increased by each cost-of-living adjustment that occurs under section 1401a(b) of [US Code Title 10, Section 1408(a)(4)] between the time of the court order and the time of the member’s retirement using the adjustment provisions under that section applicable to the member upon retirement.” Easy, right?
The second change concerns the holding of Howell v. Howell. It merely re-affirms Mansell v. Mansell, which states that Veteran’s Administration (VA) disability pay is non-marital and therefore, non-divisible by state courts. Mansell clearly applied federal pre-emption to VA disability pay, but the Arizona courts allowed Mrs. Howell to be “indemnified” or made whole by forcing her ex-husband to pay her the difference between what she would have received as her portion of his retirement and what she did receive after his VA disability pay was deducted from it. Justice Stephen Breyer wrote the opinion and stated, “Our cases and the statute make clear that the answer to the indemnification question is ‘no.’” He also stated that “State courts cannot ‘vest’ that which . . .they lack to authority to give.” Be sure to determine how your jurisdiction handles this issue. For example, the courts in South Carolina have not provided indemnification unless it is done by agreement of the parties (which is enforceable).
The third change is the Blended Retirement System, and it is the most significant change with the farthest-reaching consequences. The BRS is the new retirement system in place for all uniformed services (the normal branches plus NOAA and Public Health Commissioned Corps). It reduces the maximum retirement pay for the uniformed services from 75 percent at 30 years to 60 percent at 30 years. It also establishes a 12-year re-enlistment bonus and an employee contribution retirement plan with a match of up to 5 percent. The BRS is far reaching, so be sure to read the comprehensive explanation of it.
Here are two quick tips for drafting agreements that contain military retirement as an asset: (1) use language that clearly defines which military pay chart will be used in the division and (2) include language that allows the court to retain jurisdiction to issue a clarifying order to address the issues of division of military retirement and benefits.