For attorneys bold enough to accept the challenge, here are some tips to help you get started on handling military retirement benefits for your clients.
By Amy M. Privette and Mark Sullivan, Family Lawyers
Military retirement benefits are not handled in the same manner as private pension plans, which are governed by ERISA (Employee Retirement Income Security Act). Allocating and dividing military retirement benefits as part of a divorce case is not easy. The best advice is to find someone “in the know” who can help you and your client navigate the minefield of military pension division, Survivor Benefit Plan (SBP) coverage, medical care before and after divorce, and other retirement benefits. Still, for those bold enough to take on the challenge, here are some tips to help you get started.
Ten Commandments for Handling Military Retirement Benefits
1. Get the docs.
There are numerous documents that you need to request from the servicemember (SM) to handle military retirement benefits. This could include a Leave and Earnings Statement (for active-duty members), Retirement Points Statement (for Reserve and Guard members), Retiree Account Statement (for retirees), SBP election forms, retirement orders, and discharge papers, as well as Officer or Enlisted Record Briefs.
2. Know the rules.
The division of military retired pay is authorized by the Uniformed Services Former Spouses’ Protection Act (USFSPA), 10 U.S.C. § 1408. It is an enabling act which allows states to divide military retired pay, but leaves the specifics of how to do it up to each state. The Survivor Benefit Plan (SBP) is the survivor annuity program that allows the former spouse to continue receiving a stream of payments after the servicemember/retiree dies. SBP is provided for under 10 U.S.C. § 1447 et seq. Volume 7B of the Department of Defense Financial Management Regulation, DoD 7000.14-R (DoDFMR) expands upon the federal statutes to provide more detailed guidance as to the division of military retirement benefits. See also 10 U.S.C. § 1408 (c)(4) for specific rules regarding which courts have jurisdiction to divide military retirements.
3. Identify the system.
Active duty retirement occurs under one of three systems:
- Final retired pay
Reserve/National Guard retirements are based on retirement points, NOT time, and the service member must have at least 20 “good years” of service (50 points are required to have a good year) to be retirement-eligible. Active duty retirements pay out immediately upon retirement whereas Reserve or Guard retirements generally do not pay out until the retiree reaches age 60. The cost of providing SBP coverage to a former spouse can also differ, depending on whether it is an active-duty or reserve retirement.
4. Use the right lingo.
SCRA – When the SM has not yet retired, the pension division order must state that the SM’s rights under the Servicemembers Civil Relief Act, 50 U.S.C. Appx. 501 et seq., have been honored. DFAS is the retired pay center for Army, Navy, Air Force, Marine Corps (as well as Reserve units and Air and Army National Guard). There are separate pay centers for retirees of the Coast Guard, Public Health Service, and National Oceanographic and Atmospheric Administration. Disposable Retired Pay (DRP) is gross retired pay less any VA disability waiver, the premium for SBP (if coverage is for the former spouse of this divorce), and any other money owed to Uncle Sam. DRP is what the pay center divides, regardless of what the court order says. COLAs (cost-of-living adjustments) are usually applied to retired pay in January and are automatically included in the share received by the former spouse unless the court order awards the spouse a flat dollar amount. The pension is not a “fund,” so you cannot refer to the account balance or the part of the fund acquired during the marriage or vested at the date of divorce. Use an MPDO (Military Pension Division Order) to divide the retirement benefits, not a QDRO, since this is not a “qualified plan” under federal law; it is a statutory retirement program.
5. Choose wisely.
When the pension is based on retirement from active duty, there are four acceptable methods for dividing it:
- fixed dollar amount;
- formula clause; and
- hypothetical award.
There are pros and cons for each method, so make sure you evaluate which would be best for your case. A full explanation of the four methods can be found in the Attorney Instruction Guide available at the DFAS website.
6. Don’t forget the SBP.
SBP is a unitary benefit and cannot be divided between a present and a former spouse. Without SBP, the stream of pension payments to the former spouse ceases upon the death of the servicemember/retiree. The benefit paid out is 55% of the selected base amount. The maximum base amount is the full retired paycheck; the minimum base amount is $300. The cost for coverage is generally 6.5% of the selected base amount, paid upon retirement by deduction from the pension check. If the former spouse predeceases the retiree, then the spouse’s share of the retired pay automatically reverts back to the retiree – at NO cost. If the former spouse gets remarried before age 55, then her coverage under SBP is halted.
7. Watch the clock.
There must be ten years of marriage overlapping ten years of military service for the former spouse to get pension payments directly from the pay center. Even with an overlap of fewer than ten years, the former spouse is still eligible to claim a share of the retired pay, but the retiree will have to make the payments. There are two deadlines for setting up SBP coverage for the former spouse. When the SM makes the election, it must be done within one year of divorce; when the former spouse sends in a “deemed election,” it must be done within one year of the order requiring the other party to elect SBP coverage.
8. Beware of disabilities.
Certain types of disability compensation can reduce the retired pay that is divisible with a former spouse. The primary types of disability payments are military disability retired pay, VA disability compensation, and Combat-Related Special Compensation (CRSC). The court cannot divide VA disability compensation (see 1989 Mansell decision by the U.S. Supreme Court), and only a small part of military disability retired pay is subject to pension division (although disability benefits ARE subject to consideration in support cases, in general). When the military retiree has a VA disability rating of less than 50%, the election of VA payments means a dollar-for-dollar reduction of retired pay; thus, the retired pay share for the former spouse gets reduced due to the unilateral action of the retiree. Courts and agreements often employ indemnification language to guard against this and to protect the property share awarded to a former spouse.
9. (Don’t) Get a Life.
When representing the former spouse, don’t rely on Servicemembers Group Life Insurance to secure benefits; a 1981 Supreme Court decision says courts cannot enforce orders or agreements that require SGLI. Ridgway v. Ridgway, 454 U.S. 46 (1981).
If there have been 20 years of marriage overlapping 20 years of military service, then an un-remarried former spouse may qualify for full medical benefits as a 20/20/20 spouse. For shorter-term marriages, look into CHCBP (Continued Health Care Benefit Program) as a means of providing health insurance coverage.
Mark Sullivan is a retired Army Reserve JAG colonel, practicing family law in Raleigh, North Carolina. He is the author of The Military Divorce Handbook (ABA, 2nd Ed., 2013). A Fellow of the American Academy of Matrimonial Lawyers, Mark has been a board-certified specialist in family law since 1989. He works with attorneys and judges nationwide as a consultant and an expert witness on military divorce issues in drafting military pension division orders. www.ncfamilylaw.com.
Amy Privette, an estate planning attorney, contributed to this article when employed by the Law Offices of Mark E. Sullivan, P.A., as a North Carolina state bar-certified paralegal. During her years with the firm, her primary responsibility was family law, with a special focus in the area of military divorce and federal pension division issues.
Military retired pay can be divided under a Military Court Order (MCO), which is the military’s version of a QDRO.