Can you work around NDAA 2017 to allow a former spouse to receive coverture (time rule) pension benefits? And when should you use the Frozen Benefit form?
By Mark Altschuler, Family Lawyer
On December 23, 2016, President Obama signed the National Defense Authorization Act (NDAA 2017), for fiscal year 2017. NDAA 2017 contained a major revision of the formula used for pension division in Military Court Orders (MCO), as the pension benefit to be divided is frozen as of the date of entry of the Order, which is the “bright line” formula.
NDAA 2017 now overrides most states’ use of the coverture (time rule) formula, including but not limited to, New York, New Jersey, Pennsylvania, Ohio, and California, and forces the use of a bright-line formula.
The Frozen Benefit Rule in Military Court Orders
While the pension benefit to be divided under NDAA 2017 fixes years of service and rank as of the date of entry of the MCO, the salary to be used in the formula is increased for all cost of living adjustments (COLA) from the date of MCO entry until the date of retirement. Under the Uniformed Services Former Spouses’ Protection Act (USFSPA), the portion that can be awarded to a Former Spouse can be no more than 50% of the disposable retired pay (which is defined as retired pay net of disability payments that come from the US Dept. of Veterans Affairs). Putting aside disability, this limitation will rarely affect a coverture award, which is typically 50% of the marital portion, where the marital portion is defined by the coverture fraction (marital service divided by total service) times the disposable retired pay as of retirement. While the USFSPA allows a coverture award, it is effectively trumped by NDAA 2017, which essentially freezes the benefit as of the date the order is entered.
Draft an Alimony Garnishment vs. MCO dividing Retired Pay
How do you work around NDAA 2017 so that state law can be controlling and coverture (time rule) payments may be awarded to the former spouse? You draft an alimony garnishment order for division of “remuneration for employment” rather than an MCO that divides disposable retired pay. An alimony garnishment order under 42 U.S.C. §659 is based upon remuneration from employment, and not disposable retired pay. NDAA 2017 addresses disposable retired pay but does not apply to alimony payments. An alimony order is not subject to the 10/10 rule but may require a separate Survivor Benefit (SBP) Order.
To secure an alimony order, alimony needs to be addressed in the Marital Settlement Agreement (MSA). If the MSA addresses an MCO, the service member may object to an alimony order. Therefore, the MSA needs to specify that a consent order for spousal support will be drafted along with the usual terms of the MCO, including SBP. The member’s attorney should note that DFAS (Defense Accounting and Financial Service) only allows one survivor.
When to Use the Frozen Benefit Form
The MSA must state that the maintenance or alimony is non-modifiable. In addition, states such as New Jersey have statues limiting the duration of alimony to the duration of the marriage. Therefore, even if the parties are in agreement, the court could decide to limit the duration of payments to the Former Spouse. If the Member has served more than 20 years, the difference between a frozen benefit order and a coverture order is primarily post-marital-rank increase. If the Member is E9 (top rank enlisted man or woman) with zero chance of promotion, this risk means that the alimony order is not worth it, and the frozen benefit form should be used. If the Member is O5 officer with a chance of promotion to O6 or O7, there is a trade-off in states with statutory limits on alimony, in terms of using an alimony order.
Mark Altschuler has an extensive understanding of the complexities surrounding military retirement including drafting settlement language and military court orders. He has personally performed over 30,000 valuations and QDROs (& MCOs) and presented CLE seminars on military division in divorce. He has devoted an entire chapter to military pension and QDRO division issues in his book, Value of Pensions in Divorce (Wolters-Kluwer: NY), co-authored with Nora Kelley, Esq. (See Chapter 23, the 2016 Supplement to the Fifth Edition.) www.pensionanalysis.com
Military Pension Division: The Frozen Benefit Rule
This new rule upends the law regarding military pension division in almost every state.