Circumventing a Trial Court’s Ruling Regarding Military Retirement Pay

A surprising Supreme Court decision allows a disabled veteran to override an ex-spouse’s right to receive their court-awarded share of military retirement pay.

By Laura Morgan, Family Lawyer and Consultant

In October 2016, the United States Supreme Court ruled on a very significant family law case, Howell v. Howell, 581 U.S. ––––, 137 S.Ct. 1400 (2017). www.supremecourt.gov/opinions/16pdf/15-1031_hejm.pdf

In 1991, a court awarded Sandra Howell half of Air Force veteran John Howell’s retirement pay when the couple was divorced.

However, after becoming aware in 2005 that he was eligible for disability benefits, John, who had received a 20% disability rating from the Department of Veterans Affairs, elected to waive $250 of his $1,500/month in taxable retirement pay in order to receive $250/month in non-taxable disability pay from the VA. This waiver reduced Sandra’s monthly divorce settlement by $125, so she filed a motion to enforce the divorce decree’s division of military retirement pay, arguing that she should get half of what it would have been had John not opted for disability pay.

The Arizona Superior Court awarded Sandra arrearages and ruled that John was responsible for ensuring that she receive her full 50% of his retirement pay without regard for the disability. The Supreme Court of Arizona affirmed the Superior Court’s order.

Circumventing a Trial Court’s Ruling

The U.S. Supreme Court, per Justice Breyer, held that states were prohibited from increasing, pro-rata, the amount a divorced spouse received from a veteran’s retirement pay in order to restore the portion lost due to the veteran’s post-divorce election to receive service-related disability benefits. The holding abrogated Glover v. Ranney, 314 P.3d 535 (Alaska 2013); Krapf v. Krapf, 439 Mass. 97, 786 N.E.2d 318 (2003); Johnson v. Johnson, 37 S.W.3d 892 (Tenn. 2001); and Abernethy v. Fishkin, 699 So.2d 235 (Fla. 1997).

Relying wholly on Mansell v. Mansell, 490 U.S. 581, 109 S.Ct. 2023, 104 L.Ed.2d 675 (1989), the Court held:

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. Mansell, supra, at 589, 109 S.Ct. 2023. 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 (under governing federal law) they lack the authority to give. Cf. 38 U.S.C. § 5301(a)(1) (providing that disability benefits are generally nonassignable). 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. (137 S.Ct. at 1405-06)

Two Major Loopholes to Avoid Potential Hardship

The Supreme Court left open two major loopholes, however, to avoid the hardship that this decision might bring:

“[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.” (137 S.Ct. at 1406)

Thus, a family court can compensate the non-military spouse for the waiver from other assets; it just can’t compensate the non-military spouse dollar-for-dollar from the divisible military retirement disposable pay. A family court can also compensate the non-military spouse for the waiver by way of alimony.

Until 2003, disabled veterans had to select either their full retirement compensation from the Department of Defense or their VA disability benefit with a reduced retirement annuity. This penalty became known as the “VA offset.” Many veterans choose the offset, however, because disability payments are tax-free. In the 2003 and 2004 defense authorization bills, Congress waived this offset in certain cases, and veterans with career-ending combat injuries or a disability rating of 50% or higher were allowed to concurrently receive both types of payments.

Unilateral Decisions Override Ex-Spouses’ Rights

According to Colonel Mark E. Sullivan, ret., author of The Military Divorce Handbook (ABA 2d ed. 2011), the decision was a surprise. It allows individuals to make unilateral decisions, without the approval of the judge or the consent of the former spouse, that essentially defeat the former spouse’s right to receive the amount of retired pay awarded by the court. By making a unilateral election for disability compensation, the retiree effectively circumvents the ruling by the trial court in setting what the former spouse will receive – after the court has approved the parties’ settlement or made an equitable division of property that took all the facts and factors then present into account.

Attorneys who represent the non-military former spouse may want to forego sharing the pension in favor of a “present value set-off,” that is, the valuation of the retiree’s pension, the award to him or her of the present value of the marital or community share of the pension, and the award to the former spouse of other property acquired during the marriage – if any exists – of equal value.

The compensatory alimony remedy has already found favor. In In re Marriage of Jennings, 138 Wash.2d 612, 980 P.2d 1248 (1999), the wife was awarded $813 in the property division decree as her share of the husband’s military retirement. The husband’s subsequent VA waiver brought her payments down to only $136 per month. When this occurred, she filed a motion asking the court to vacate the decree, modify it to provide her with spousal support payments equal to half of the husband’s disability payments, or clarify the decree to require the husband to pay her no less than $813 per month. Based on the “extraordinary circumstances” presented, the court entered an order providing the wife with compensatory spousal support to make up for the loss caused by the VA waiver.

The Supreme Court approved the use of “compensatory spousal maintenance” that would not end if the ex-wife remarried. 138 Wash.2d at 626. See also Longanecker v. Longanecker, 782 So. 2d 406 (Fla. Dist. Ct. App. 2001); Longo v. Longo, 266 Neb. 171, 663 N.W.2d 604 (2003) in which the trial court granted the wife alimony of $1 per year, modifiable only upon a potential reduction to the husband’s future military pension because of a future disability offset. But In re Marriage of Cassinelli, 4 Cal.App. 5th 1285, 210 Cal. Rptr. 3d 311 (2016) held that the trial court could not use spousal support as a replacement for money lost to the former spouse because of a VA waiver.

Protecting Veterans’ Retirement Rights

Both Congress and the Supreme Court protect the retirement rights of military members to the detriment of ex-military spouses. In late 2016, Congress made a very significant change to the definition of disposable retired pay under the USFSPA. Disposable retired pay is “the total monthly retired pay to which a member is entitled,” less certain deductions. 20 U.S.C. § 1408(a)(4)(A). Previously, the total monthly retired pay was simply the amount due.

Now, the total monthly retired pay is materially less:
(B) For purposes of subparagraph (A), the total monthly retired pay to which a member is entitled shall be –
(i) 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, as increased by
(ii) each cost-of-living adjustment that occurs under section 1401a(b) of this title 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.
10 U.S.C. § 1408(a)(4)(B)

The effect of this language is to prevent state courts from dividing any increase in military retirement pay occurring after the date of divorce, except for cost-of-living increases.

The amendment changes the definition of the only type of military retirement benefit that state courts are permitted to divide: “disposable retired pay.” Some of the limitations later in the USFSPA, see § 10 U.S.C. §§ 1408(d), (e), apply only when a spouse seeks direct payments from the military. But limitations on the definition of “disposable retired pay” are limitations upon a state court’s ability to divide the more inclusive retirement pension provided by the United States military by any method – as stated in Mansell and affirmed in Howell. State courts cannot avoid the amendment simply by ordering payment from one spouse to the other. Post-divorce increases in military retirement pay (other than cost-of-living increases) cannot be treated as marital property. For an excellent discussion of the effect of the amendment and of Howell, see Equitable Distribution of Property § 6.04 (3d ed. Supp. 2017) by Brett R. Turner.

Laura W. Morgan is the owner/operator of Family Law Consulting, which provides research and writing services to family law attorneys nationwide. She is the author of numerous law review articles and two treatises: Child Support Guidelines: Interpretation and Application (Wolters Kluwer, 2012), and Attacking and Defending Marital Agreements (ABA, 2014). www.famlawconsult.com

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