A Primer on Dividing a Military Pension

By David B. Halling & Wendy Drefahl

he Uniformed Services Former Spouse's Protection Act (FSPA) and the Survivor Benefit Plan (SBP) protect a divorcing spouse who wishes to obtain a portion of a military member's retired pay and survivor benefits.¹ The FSPA authorizes state courts to divide military retired pay and provides the rules for doing that. The SBP protects the former spouse's award against the event of the service member's death. Since retired pay terminates on the service member's death,² the SBP is the only means of continuing payments from the military to a former spouse.

A military reservist is entitled to retired pay (a pension) when he or she is at least 60 years old and has performed 20 years of military service.³ In the interest of dividing marital property, the military will make payments directly to a former spouse provided that at least 10 years of the parties' marriage overlap with the member's military service.⁴ (These limitations do not apply to division of retired pay for purposes of alimony [maintenance] or child support.⁵ ) If the parties were married for less than 10 years during which the member was in service, a portion of the member's retired pay is still considered divisible marital property. However, given the "10-year-rule" described above, the court must require the member to pay the former spouse directly, as the military will not.

The usual vehicle for dividing retirement pay, the Qualified Domestic Relations Order (QDRO), is not available to divide military retired pay. The QDRO is a creature of the Employee's Retirement Income Security Act (ERISA), from which military retired pay is exempt.⁶

The court must have jurisdiction over the military spouse in order to divide the retired pay; presence in the state on military assignment does not equal jurisdiction. Unless residence other than that due to military assignment, domicile, or consent are proper, the state court has no jurisdiction to divide the retired pay.⁷

In cases where the military person was married before, it is necessary to ascertain what the military person's "disposable retired pay" will be. In the event of an earlier marriage, the first spouse may have been awarded a portion of the member's retired pay. If that was effectuated, that award reduces the money available to the second spouse because deductions for retired pay (no matter how many spouses) may not exceed 50 percent of the service member's disposable retired pay.⁸ Conversely, there is no way a member can protect against loss of up to 50 percent of retired pay because the same code section makes that amount available to one or more former spouses.

Wisconsin law is clear that military retired pay must be considered in division of marital property upon divorce.⁹

Retired Pay

A spouse is entitled to receive up to 50 percent of the member's "disposable retired pay."¹⁰ Disposable retired pay is gross pay less certain deductions.¹¹ These deductions can include payments to an earlier spouse. It is important to know what the deductions in fact are, particularly if this is a second or third marriage. If the divorce judgment just divides the "disposable retired pay" and the existence of payments to a former spouse or other deductions hasn't been ascertained, the divorcing spouse may get substantially less than what was expected. Regardless of the 50 percent maximum that the military is allowed to pay any combination of former spouses, a second or third spouse theoretically still is entitled to what the family court awards. Any amounts in excess of what the military will pay to that spouse must be paid directly to the spouse by the member. Under this circumstance, the parties may not be able to sever ties. Often an agreement to buy out or offset the former spouse's interest is reached.

There is a further problem with disposable retired pay. United States Code section 1408(2)(C) requires that (state) court orders must provide for payment expressed in dollars or as a percentage of the total disposable retired pay. If the state court order to divide retired pay provides the former spouse with an award expressed as an exact dollar amount per month, that spouse will not receive any cost of living increases, which historically are applied each year to retirees' benefits. A percentage award will include any cost of living increases that are applied to the member's retired pay.

Until a member attains 20 years of service, he or she does not have an "accrued" retirement benefit. Logically, if the parties are divorced prior to the member's attaining 20 years of service, an order cannot award a former spouse a percentage of the member's retired pay that had "accrued as of the date of divorce." A former spouse can only be awarded a portion of the member's total disposable retired pay.

If the military member is not retired, it is very difficult to predict what his or her disposable retired pay will be at retirement. An active duty member's retired pay is calculated on years and months of creditable service and base pay at retirement. A reservist's retired pay is calculated on the number of points earned during the career, a certain multiplier factor, and the base pay tables in effect when the reservist turns 60.

Practice pointer. Consider determining the marital share of total retired pay by using a fraction. The numerator appropriately would be the years of service (or points for reservists) at the time of the divorce (or during the marriage). This numerator amount must be expressed as an exact number, and supplied in the order, as the military will not calculate it. The denominator can be expressed as the total number of years of service (or points for reservists) that the member completes or attains at retirement. Although at the time of the divorce this denominator, which is based on total service (or points), may not be known, the military will supply it upon the member's retirement. This fraction would represent the "marital share" of the member's total retired pay. For example, if the former spouse is entitled to half of said marital share, the fraction should be further multiplied by 50 percent. In effect this method gives the former spouse a floating percentage of future retired pay that is proportionate to the marital period. Since this method ultimately results in a percentage, any cost of living increases that the member enjoys also can apply to the former spouse's benefit, if specified in the order. This fractional method may be the only method available to protect the nonmilitary spouse from the effects of inflation and obtain the highest benefit which otherwise would be lost if the fixed dollar amount option is elected, not to mention the inability to share in cost of living increases. Remember, the court may not order a member to retire at a certain time just to bring certainty to the equation.¹²

Application for direct payment of retired pay to former spouses may be made on form DD-2293 and mailed to the military's Defense Finance and Accounting Service.¹³ Forms can be obtained from the same location, the Internet Web site, or any military base.

SSB and VSI

The military has formed a "Selective Early Retirement Board" to deal specifically with "downsizing." For those who have not yet served 20 years in the military, the reduction or downsizing is being accomplished by early separation bonuses, or lump-sum buyouts of their unmatured retirement benefits. If a member elects to take advantage of a "special separation bonus" (SSB) or a "voluntary separation incentive" (VSI), either in lieu of or in addition to retired pay, the military will not pay a former spouse his or her proportionate share unless the state court order so specifies.

Disability

When a member of the military becomes disabled, retired pay is reduced by the amount of disability pay. The net effect to the member is that he or she receives the same amount of money bottom line that would have been received had there been no disability. However, the military will not divide disability pay and since it operates to reduce retired pay to the member, the money available for property division purposes for the nonmember divorcing spouse is reduced by the amount of the disability pay.

Under federal law, a veteran's disability pay or disability allowance is not divisible for property division purposes. A veteran's disability pay is a federally provided replacement for earning capacity lost by reason of injury sustained while in military service. Therefore, such disability allowance is to be considered a part of a spouse's earned income and not an asset of the marital estate to be divided between divorcing parties.¹⁴ Not only are military disability benefits not divisible for property division purposes, they also cannot be made a basis for an off-setting or compensatory award to the spouse - this cannot be done directly or indirectly by state court order or by state legislation.¹⁵

Practice pointer. Since disability pay may be considered only as earned income and not as an asset to be divided between divorcing parties, where appropriate that earned income still is available for consideration of maintenance and/or child support.

Soldiers' and Sailors' Civil Relief Act of 1940

Every order that directs the military to pay a former spouse must indicate that the rights of the member under the Soldiers' and Sailors' Civil Relief Act of 1940¹⁶ have been observed. Reference to this Act indicates that the member is aware of the division of retired pay and either consented to the division of benefits as a result of the divorce proceeding, or was represented by counsel.

Merging Military Credit into Other Retirement Plans

In some circumstances, such as for federal employees, members may forfeit their military service credit and apply the service credit toward other retirement programs. For most members, this is an unlikely choice due to the number of years of service credits and the loss of value in the military benefit. However, in the interest of avoiding potential actions of spite toward a former spouse, it is important to provide for this contingency. A state court order should specify that if the member takes any steps to merge the military pension with another retirement plan of any kind, that retirement plan should be directed to honor the state court order to the extent of the former spouse's interest in the military retirement, and to the extent that the military retirement is used as a basis of payments or benefits under such other retirement plan.

Survivor Benefit Plan (SBP)

Military retired pay is payable to a former spouse only if and when it is paid to the member. This means that if the member dies, all retired pay will cease to be paid to the member and the former spouse. Simply stated, military retired pay terminates on the death of the member.¹⁷ While it is the FSPA that gives the nonmilitary spouse the right to a share of the military retired pay, it is the Survivor Benefit Plan (SBP) that protects the living former spouse after the member dies. Thus, it is necessary to protect against the cessation of retired pay benefits to a former spouse by assuring that the SBP is put in place when dividing the pension.¹⁸

An active duty member elects SBP coverage upon retiring. The reservist has two opportunities to elect SBP coverage for a spouse: 1) when he or she completes 20 years of service; or 2) when he or she reaches age 60.¹⁹ Accordingly, in the case of a reservist, it is necessary to confirm whether the military member has named the former spouse as "surviving spouse" under the SBP if his or her length of service is 20 years or more. (Or if over the 20-year service level at the time of divorce, the right to convert a portion of the retired pay if the member is retired.) This is done by writing to the appropriate branch of service.²⁰ Upon attaining 20 years of service, a reservist may elect coverage, choose to defer the election, or waive coverage completely. The latter is an irrevocable decision that a court order cannot overturn.

If a member previously has named his or her spouse to SBP coverage, divorce will negate that election. The state court marital settlement agreement must include the obligation of the military member to change his or her election from "spouse" to "former spouse." Otherwise, if the member has not yet made an election, a provision should be included to require the member to elect such coverage as soon as the opportunity arises. SBP coverage to the former spouse can be secured as long as the divorce judgment and the state court order provide for it, and the military member voluntarily agrees in writing to provide it, or the former spouse requests to be deemed the beneficiary to the SBP.²¹ If the member has agreed to the coverage and it is incorporated into the divorce judgment and the member then subsequently fails or refuses to make the election to trigger the coverage, on written request from the former spouse, the military will consider that the member is "deemed" to have made the election.²²

It is extremely important to have any SBP election or election change made by the member for the former spouse within one year of the date of divorce. The military has warned that it will not accept any such SBP election or election change that is made after this one-year period, regardless of the court order.

Finally, there can be only one beneficiary under the SBP. Therefore, if a member's first former spouse is awarded the SBP benefit, the member's second former spouse is not entitled to anything after the member's death, even if the second former spouse was married to the member more years than the first former spouse. Factors such as the length of the marriage, how close the member is to retirement, the condition of the parties' health, and whether the member has intentions of remarriage should be considered when negotiating the SBP.

Practice pointer. Life insurance often can be considered in lieu of SBP protection. This substitute protection can work well for a member who intends to remarry and desires SBP coverage for his or her subsequent spouse. For example, if a former spouse was married to a member for only the first 10 years of his or her military service, and the member is a long way from being eligible to retire, that former spouse may wish to negotiate the type of survivor protection needed. The former spouse's award could be equally protected by life insurance while keeping the SBP designation open for a potential subsequent spouse of the member (who may be married to the member for an even longer time).

If through settlement negotiation, the military member elects to provide SBP protection for future retired pay, that agreement must be in writing and become a part of the divorce judgment or decree. This becomes an enforceable state court order.²⁴ The judgment or state court order must be communicated to the military within one year of the date of the order, and the order or judgment must be certified by the issuing court within 90 days of its receipt by the military's Defense Finance and Account Service (DFAS).

Application for SBP election or election change may be made on form DD-2656-1 and must be received within one year of the date of the divorce judgment²⁴ by the military's Defense Finance and Account Service

An often overlooked practice pitfall is worth noting. If the parties are divorcing after the service member has retired and the member already has elected SBP coverage for the spouse, you must be sure that the member is ordered to change the SBP election from "spouse" to "former spouse" coverage. A failure to do that will result in the loss of coverage for the spouse because he or she has just become a former spouse.

90-day Delay

If a member is receiving retired pay benefits when the state court order is served on the Defense Finance and Account Service, there will be a minimum 90-day delay before benefits commence to the former spouse. If the member is not yet receiving retired pay benefits when the state court order is served on the Defense Finance and Accounting Service, there still will be a minimum 90-day delay before benefits commence to the former spouse.

Practice pointer. During the delay, the member will receive the entire amount of his or her retired pay, including the amount intended for the former spouse. The former spouse will receive nothing during the delay. It seems both equitable and appropriate to require the member to reimburse the former spouse for any amounts received by the member that were intended for the former spouse.

Submitting the State Court Order to the Military

Along with the court certified copy of the state court order, the Defense Finance and Account Service Center will require a copy of the marriage certificate necessary to prove 10 years of marriage, a copy of the divorce judgment sealed with the official court certified seal and dated within 90-days immediately preceding its service to the Cleveland Center, and a completed and signed DD Form 2293 (application for former spouse payments from retired pay). DFAS also will require submission of DD Form 2656-1 (Survivor Benefit Plan election statement) signed by both parties and witnesses. The completed DD Form 2656-1 should be mailed to the address specified on the form. In the event the former spouse needs to request to be deemed the former surviving spouse for SBP coverage, a written request should be sent in duplicate with one copy accompanying the state court order and the other being mailed to the address to which DD Form 2656-1 otherwise would be mailed. If additional documentation is required or requested, DFAS will notify the former spouse.

Remember the Fringes

A commonly overlooked, but substantial, benefit to a former spouse is the access to medical, commissary, and base exchange privileges. These are available in varying degrees, depending upon reserve or active service, length of service, length of marriage, and length of overlap between the marriage and service.²⁵ With a 20-year overlap, the former spouse is entitled to full benefits. Remarriage will result in the irrevocable loss of medical benefits, but commissary and base exchange privileges may be reinstated if the remarriage ends. With only a 15-year overlap the privileges are more limited. Details on these privileges, compiled by the Department of the Navy, are set forth in the accompanying sidebar. Further information may be obtained by writing the individual military services.

Conclusion

The authors have endeavored to give a brief overview of the statutory concepts, regulations, and research sources applicable to the division of military retired pay upon divorce. A final caution is needed: Practitioners should be wary of forms, because there is no substitute for a careful lawyer's judgment, independently exercised, on a case-by-case basis.²⁶

Endnotes

¹ Though also applicable to present spouses and children, it also is available to former spouses. 10 U.S.C. 1408 and 1447.

² 10 U.S.C. 1408(d)(4).

³ 10 U.S.C. 1331(a). Active duty personnel needn't wait to age 60.

⁴ 10 U.S.C. 1408(d)(1) and (2), and 32 C.F.R. 63.6(a)(2).

⁵ 10 U.S.C. 1408(e)(6), and 32 C.F.R. 63.6(a)(2).

⁶ 29 U.S.C. 1003(b)(1) and 1051.

⁷ 10 U.S.C. 1408(c)(4). Be careful of the difference between residence and domicile. A residence is where you live now but a domicile also includes an intention to make it one's fixed and permanent home.

⁸ 10 U.S.C. 1408(e)(1).

⁹ Cook v. Cook, 208 Wis. 2d 166, 560 N.W.2d 246 (1997).

¹⁰ 10 U.S.C. 1408(e)(1).

¹¹ 10 U.S.C. 1408(a)(4).

¹² 10 U.S.C. 1408(c)(3).

¹³ 10 U.S.C. 1448(3)(a)(i). Defense Finance and Accounting Service, DFAS-Cleveland/Code L, P.O. Box 998002, Cleveland, OH 44199-8002.

¹⁴ Leighton v. Leighton, 81 Wis. 2d 620, 261 N.W.2d 457 (1978).

¹⁵ Pfeil v. Pfeil, 115 Wis. 2d 502, 341 N.W.2d 699 (1983), 38 U.S.C.A. 3101 sub. A.

¹⁶ Soldiers' and Sailors' Civil Relief Act of 1940, 50 U.S.C. App. 501 et seq.

¹⁷ Title 10 U.S.C. 1408(d)(4).

¹⁸ Title 10 U.S.C. 1447. Also, the wisdom of acquiring private insurance to accomplish the same goal is not discussed here, but worthy of consideration. To evaluate the options, one should ascertain the premium for the SBP (which will reduce the payment to the former spouse) and compare it with the premium cost for private insurance (annuity).

¹⁹ 10 U.S.C. 1448(2)(B). A member on active duty may do so only once, that is, when he or she retires.

²⁰ 32 C.F.R. 63.6(5).

²¹ 10 U.S.C. 1408(c)(1) and (c)(3).

²² Title 10 U.S.C. 1450(f)(3)(A).

²³ Title 10 U.S.C. 1448(d).

²⁴ 32 C.F.R. 63.6(c) and 10 U.S.C. 1450(f)(3)(B). Also see form DD-2293, available from DFAS-Cleveland Center, P.O. Box 99191, Cleveland, OH 44199-1126. Forms can be obtained from the same location, the Internet Web site, or any military base.

²⁵ 10 U.S.C. 1072(2).

²⁶ A reference work has been published recently by the American Bar Association Section of Family Law: "Military Retirement Benefits in Divorce," by Marshal S. Willick (1998).

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