The new Frozen Benefit Rule upends the law regarding military pension division in almost every state.
By Mark E. Sullivan & Kaitlin S. Kober, Family Lawyers
On December 23, 2016, Congress passed The National Defense Authorization Act for Fiscal Year 2017 (NDAA 17) which dramatically altered how military pension division orders are written. Instead of allowing the states to decide how to divide military retired pay, Congress imposed a single uniform method of pension division on all the states, a fictional scenario in which the military member retires on the day that the judgment of divorce is entered. This new rule up-ends the law regarding military pension division in almost every state.
The new rule applies to those still serving (active-duty, National Guard or Reserves) who get divorced after December 23, 2016. Going forward, what’s divided will be the hypothetical retired pay attributable to the rank and years of service of the military member at the time of the divorce. The only adjustment will be cost-of-living adjustments that occur under 10 U.S.C. § 1401a (b) between the date of divorce and the time of retirement.
Hypothetical Clause
The new rule requires the use of a “hypothetical clause” when submitting a military pension division order to the retired pay center. The hypothetical clause is the most difficult to draft of the pension clauses available. The retired pay center requires specific information to be included – which varies slightly based on the date the member entered service and whether they expect to receive an active duty or reserve component retirement. For example, with a “High-3” and CSB/REDUX retirement, you must specify in the order the hypothetical years of service and the hypothetical retired pay base. Without the right help and proper wording, attorneys who submit their pension orders to the retired pay center will receive rejection letters and end up with frustrated clients.
The Time Rule
The “time rule” for pension division, used in most states, is based on the “marital foundation theory,” which recognizes that the individual’s final retired pay is based on a foundation of marital effort. The idea is that a servicemember would have never attained the rank of sergeant major with 30 years of service if it hadn’t been for the efforts expended during the marriage up to the rank of sergeant first class over 20 years, when the parties divorced. The time rule provides the fairest approach to the division of the pension, which is why the majority of states have adopted it for dividing every type of pension. The time rule approach goes out the window under this new NDAA 17 rule because the share of the former spouse (FS) is frozen as of the date of divorce.
Effective Immediately
How much time is allowed for states to revise their laws to accommodate this new rule? None. The new rule is effective immediately. There is no interim period given to allow the majority of the states to write up, propose and enact laws consistent with the “new rule.” This is especially troubling for the FS who will suffer a double discount if the denominator of the marital fraction is not revised.
The double discount occurs as follows: First, the benefit to be divided with the FS is frozen at the rank and years of service at the time of the divorce. Second, the marital fraction is still based on years of marital pension service divided by total pension service years (marital service years ÷ total service years) rather than years of marital pension service years divided by service years up to the date of divorce. An example of the double discount is illustrated in a 2014 Texas case, Douglas v. Douglas,[1] which held that the denominator in a “hypothetical clause” is the months of creditable service during marriage up to the date of divorce, rather than the date of retirement. The Texas Court of Appeals stated that accepting the husband’s proposition that the denominator should be total years of service would impermissibly dilute the ex-wife’s share acquired during the parties’ marriage.
The new law is effective and binding on the states immediately upon enactment. Although the method of dividing pensions, as well as the date of valuation and classification of marital or community property, have always been a matter of state law, that will change in the military case. Since no time has been allowed for state legislatures to adjust to the change and rewrite state laws, lawyers will need to make adjustments to deal with military pension division cases which are presently on the docket or which come to trial before the state legislature can act.
Resources
A complete guide to problems and pitfalls stemming from the “Frozen Benefit Rule” is in the Silent Partner infoletter, “Fixing the Frozen Benefit Rule.” How to write acceptable military pension clauses may be found at the Silent Partner “Guidance for Lawyers: Military Pension Division.” For the necessary terms for the MPDO, see the Silent Partner, “Getting Military Pension Orders Honored by the Retired Pay Center”; this guide includes the necessary elements and language for a proper hypothetical clause. The final resource is the Silent Partner infoletter, “All Clauses Considered”; this guide deals specifically with writing the frozen benefit award. All these info-letters are located at www.nclamp.gov.
[1] Douglas v. Douglas, 2014 Tex. App. LEXIS 12398, citing Berry v. Berry, 647 S.W.2d 945, 946-47 (Tex. 1983). See also Dziamko v. Chuhaj, 193 Md. App. 98, 996 A.2d 893, 903 (2010) (explanation of results from denominator of marital fraction that ends upon divorce vs. one that ends upon retirement).
Mr. Sullivan is a retired Army JAG colonel and author of The Military Divorce Handbook. Mark and Kaitlin practice family law with Sullivan & Tanner, P.A. in Raleigh, N.C. and work with attorneys nationwide as a consultant on military divorce issues and in drafting military pension division orders. www.ncfamilylaw.com
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