In Martin v. Martin, Florida’s First District Court of Appeal ruled that the Appellant’s pre-marital military service should be considered marital when applied to a federal pension benefit calculation. Here’s why.
By Timothy C. Voit, Forensic Economist/QDRO Analyst
Many family law professionals do not realize that unused military years can be applied to most government pension plans to enhance a monthly pension benefit at retirement. That is, if a military member does not accrue 20 years of military service (a requirement the service member must meet to receive military retired pay), the equivalent number of military years can be included to enhance a pension accrued under a different entity – usually government pension plans. What happens, however, if the military years were pre-marital when the government pension is considered marital? One answer to this question can be found in the recent Martin v. Martin decision1.
So, Can Pre-Marital Military Years Become Marital in a Pension?
The impact unused military years might have on a monthly pension benefit can best be illustrated by an example. First, let us assume a member of the Armed Forces accrued four years of military service, irrespective of marital status. As previously mentioned, the military requires 20 years of service to assign a monthly pension benefit to a military member; known as 20-year cliff vesting, this is retired pay for life. If a member has less than 20 years, they will not receive a pension in most cases (an exception might be when the military is downsizing and offers incentives to those with 15 to 20 years of service).
Most municipal state and federal pension plans will imply that military years that are not applied to a military retirement can be used to enhance a monthly pension benefit and not go to waste; however, explanations like this are misleading. Are the years actual military years or simply equivalent years? Although some may think that actual military years are being applied, but if the service member has forfeited their actual years (so there is no vested retirement), then they are in reality purchasing equivalent years of service.
A typical defined benefit plan will base a lifetime monthly pension benefit on a formula using:
- years of service,
- average annual income, and
- a retirement factor.
Now let us assume that the same former Armed Forces member is now earning $60,000 per year and has 20 years of service as a federal employee. If a plan formula uses a 1% factor – some plans might use 2%, 3%, or somewhere in between – the individual’s accrued monthly pension benefit is $1,000 per month: e.g. 1% x $60,000 x 20 years =$12,000 divided by 12 months = $1,000 per month.
If he makes a deposit of a few thousand dollars with the plan to apply his four years of military service, the additional four years would result in him receiving $1,200 per month for life, e.g. (0.01 x $60,000 x 24 years) ⎟ 12 months = $1,200/month.
Martin v. Martin: Pre-Marital Military Years Become Marital in a Pension
In Martin v. Martin1 – a case handed down on June 20, 2019 – Florida’s First District Court of Appeal opined that Appellant David Martin’s eight years of pre-marital military service should be considered marital when applied to his federal pension benefit calculation. The federal pension was accrued during the marriage but the assumed military years occurred prior to the marriage.
The court’s reasoning was based on the fact that in order to apply his unused military years to his government pension, David (a federal employee) had to pay to have those years applied, and he used marital funds to purchase the equivalent military years. As Dawn Martin’s (the former wife’s) expert at the first trial, I explained that her husband would have been required to serve in the military for 20 years to receive military retirement benefits, so those eight years of service had no value for purposes of retirement until he purchased them to apply towards his civil service retirement.
David Martin’s attorney argued “but for” the husband being in the military he could not have enhanced the pension. The attorney representing Dawn Martin argued that but for the husband participating in the Federal Employees’ Retirement System, he could not have applied the eight years of “equivalent” service – on top of which he used marital funds to purchase said years. The trial court found that Dawn was entitled to 50% of David’s pension, and the Court of Appeal affirmed that decision.
In this case, purchasing David’s eight years, two months, and 25 days cost $9,866 – which added an additional $908 per month to the monthly pension for the rest of his life. Not a bad investment, considering only 10 months of payments will make up for the initial cost, and that the pension could potentially pay benefits for the next 20 to 30 years. The Court of Appeal viewed this purchase as a “marital investment”, in which the additional benefit would not have accrued without using funds acquired during the Martins’ marriage.
In re Marriage of Zamudio: Pre-Marital Military Years Become Marital
In a recent Illinois case, In re Marriage of Zamudio2, the husband used marital funds to add an additional four years of pre-marital military service to his current pension. Like the Martin v. Martin case, the Illinois Appellate Court reasoned that the “enhanced value” of each pension payment flows both from his participation in the plan itself and the fact that the pension statute allows him to enhance the present value of his annuity by an amount calculated based upon his prior military service. The appellate court recognized that “the enhancement was calculated based on the number equal to the number of months Frank served in the armed forces”, implying that the calculation was based on equivalent years– not actual years of service.
Do Purchases with Marital Funds Always Become Marital Property?
Many other courts across the country have reached the same conclusions in similar cases. However, courts in New York and California have ruled that the application of pre-marital military years should be considered separate property – despite the fact that they were funded with marital funds. In Valachovic v. Valachovic3, the court in New York did not suggest a remedy for making the spouse whole for their one-half share of the marital monies that were used to apply the military years. In In re Marriage of Green4, the California court only awarded the spouse one-half of the initial monies that were used to purchase the years, apparently without any interest.
If you have a case where there is the potential for the court to disagree with the concept of marital funds equals marital property, then the only logical approach would be to either add interest to the former spouse’s one-half share of the marital contribution or assume the same investment return on those marital monies used to purchase the years as what would have otherwise have been earned in the former spouse’s Thrift Savings Plan or 401(k). It goes without saying that the marital contribution – regardless of what plan it was contributed to – would have increased in value. Over 20 years, that initial marital investment would have likely been worth more than five times as much.
For the majority of cases, making a deposit or contribution toward any enhancement of one spouse’s pension with marital monies will make that enhancement marital. Naturally, if non-marital monies were used to purchase the equivalent non-marital or pre-marital years, there would be no question that the enhancement would be then be considered non-marital.
1 Martin v. Martin, 1D18-2546 in the advance sheets (Florida Law Weekly)
2 In re Marriage of Zamudio, 3-16-0537 (Ill.App.Dist.3 02/20/2019)
3 Valachovic v. Valachovic, 9 A.D.3d 659, 660, (NY App. Div. 2004)
4 In re Marriage of Green, 302 P.3d 562 (Cal. 2013)
Timothy Voit is a Certified QDRO Specialist with the American Association of Certified QDRO Professionals. He has prepared QDROs for WFA and Voit Econometrics Group for 25 years, and he has testified in both state and federal courts. Tim is the author of Retirement Plan Benefits and QDROs in Divorce and Federal Retirement Plans in Divorce. www.vecon.com and www.wfa-econ.com
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