Navigating the Murky Waters of the Former Spouses Protection Act
By Major Gavin G. Grimm
Whether it be due to the regular deployment schedules, long hours in the field, or any of the other normal daily stressors that accompany military life, the concept of divorce is not foreign to service members. What is unique to military divorces, however, is that for decades, courts across the country have struggled to deal with reaching equitable solutions about how to divide retirement pay between the military spouse and their ex-spouse. The historic lack of uniformity from state to state led Congress to take action. In 1982, it passed the Uniformed Services Former Spouses Protection Act (USFSPA).1 It is well-recognized that a case out of California saying that retirement pensions could not be treated as divisible marital property was the turning point that led to enactment of attempted clarification from Congress.2 The passage of the USFSPA was not an attempt to direct states as to how to divide retirement pensions as marital property, or even that they had to. It merely became law that they could do so.
States accepted the USFSPA as the standard for dealing with divisible retirement pay, and most military spouses became familiar with it, as well as how it would apply to them upon dissolution of their marriage. Or, so they thought. Over time, some ambiguity developed, as interpretations of the USFSPA gave state courts great latitude when it came to the way they chose to divide military pensions. Although it was clear the pensions could be treated as divisible marital property, many jurisdictions took their own unique positions with regard to how to handle disability payments that were due the retired service member. These varying interpretations can arguably be derived as the intent of the USFSPA, which states, in part, that “a court may treat disposable retired pay payable to a member . . . as property solely of the member or as property of the member and his spouse in accordance with the law of the jurisdiction of such court.”3 The passage of the USFSPA, originally seen by Congress as a solution, instead quickly became a source of dispute, especially when contemplating the interrelation of the pension and disability benefits.
Disability Benefits
The following is a basic explanation of how disability benefits work for the purposes of a military retiree: Once the service member receives a disability rating from the Department of Veterans Affairs (VA), they may begin receiving monetary benefits. In the event that the service member is also receiving a regular pension based upon retirement for length of service, the service member must waive a portion of their regular pension commensurate with their disability payment if they wish to receive this money. Essentially, any retiree who is eligible to receive disability payments after receiving a disability rating from the VA may opt to relinquish all or part of their retired pay so they may receive another benefit (disability pay, in this instance). Most members will opt to waive only so much of their retired pay as is equal to the amount of disability compensation to which they are entitled.4 The incentive to initiate this waiver is that all of the disability payments, unlike normal retirement pensions, are completely exempt from all federal and state income taxes.5 The requirement to waive part of a retirement pension prevents what is often known as “double dipping,” which is (in most cases) prohibited.6
It is worth noting that there does exist an exception to the standard for retirees who carry a VA disability rating of 50% or higher. These individuals are enrolled in the Concurrent Retirement and Disability Payments (CRDP) program, which authorizes them to collect their full retirement pension and the full disability payments they rated.7 Despite this being the exception to the rule, a surprisingly large number of people fit this scenario. As of 2016, the Department of Defense estimates over half a million military retirees are enrolled in the CRDP.8 Contrast this with another 400,000 retirees who also collect disability from the VA, but do not rate a high enough percentage to qualify for the CRDP.9
The background for how disability payments work for retirees is important to understand for this discussion, because soon after the passage of the USFSPA, these disability payments began getting lumped into the giant pile of divisible marital property by state courts that didn’t seem to understand the act. The USFSPA defined disposable retirement pay as “the total monthly retired pay to which a member is entitled . . .” less certain exempted amounts, such as overpayments or money to be paid as forfeitures from a court-martial.10 These “certain exempted amounts” mentioned in the USFSPA include disability payments. It refers to all retired service members receiving disability payments, regardless of if they are medically retired as a result of their disability11 or if they are retired for length of service but have a proven and rated service-connected disability qualifying them for payments under the disability program.12 Despite the fact that we have federal statutes directing that disability payments are not to be considered part of disposable retirement property, the legislative history of USFSPA and disability cases are strewn with cases where courts have done just that.
Indemnification
The first big case that really tested whether or not disability payments could be included as divisible martial property reached the United States Supreme Court in 1989. Air Force Major Gerald Mansell was getting divorced from his wife. He signed a marital dissolution agreement (MDA) which said he would “pay Mrs. Mansell 50 percent of his total military retirement pay, including that portion of retirement pay waived so that [he] could receive disability benefits.”13 Whether or not this was intentionally written into the MDA by Mrs. Mansell’s attorney to test the boundaries of legal interpretation is unknown. Major Mansell, who knew he would be getting a disability rating from the VA, did agree to it. A few years later, Maj. (Ret.) Mansell petitioned the state court in California to amend the MDA to strike the language regarding the disability payments. California refused, and the case made its way to the Supreme Court, which held it was an unenforceable provision for Mrs. Mansell to lay claim to Maj. (Ret.) Mansell’s disability payments and reversed the California courts. Mrs. Mansell’s arguments that her ex-husband intentionally lowered his payments by waiving a portion of his retirement pension and that he agreed to this deal so he should be bound by it, fell upon deaf ears. Seemingly, the initial interpretation of disposable retirement property found in the USFSPA excluding disability payments seemed to be on solid ground after the decision in Mansell. But, that changed just a few years later.
The real problem that began to arise was when the following scenario, or one very similar, would develop. Consider: service member and spouse begin divorce proceedings, and in the MDA, the civilian soon-to-be-ex-spouse is awarded something to the effect of “one-half of all retirement pay to which the service member is/will be entitled.” Note, there is no specific mention of disability payments as we saw in Mansell. Simply language that one-half of “all retirement pay” will be split. The service member retires and for years, each month, 50% of the retirement pay goes directly to the former spouse. So far, so good. Five years after retiring, the service member goes to the VA and is told they have a 30% disability rating and are entitled to additional disability money. Because the rating is below 50%, they are ineligible for the CRDP. As a result, they elect to waive a portion of their monthly pension so they can collect that same amount in the form of tax-free disability payments.
Now, for purposes of using nice, clean, round numbers, let’s assume the service member is entitled to $200 per month in disability payments, given the 30% rating.14 That means the service member is forfeiting $200 per month from their regular retirement pension, half of which has been going to their spouse each month for several years. Because they waived that money, the monthly retirement payment will decrease by $200 each month, thus decreasing the ex-spouse’s share by 50% of $200, or $100 per month. The ex-spouse soon notices that they are receiving $100 less per month. Money which the service member waived, intentionally and knowingly, to receive tax-exempt money. The ex-spouse petitions the court to take action to make them whole. The court rules that the service member’s election to reduce the pension to receive disability payments is an unlawful unilateral modification of the MDA and directs them to indemnify the ex-spouse in an amount equal to what they were previously receiving. Essentially, the service member is directed to supplement the ex-spouse’s monthly payments out of pocket.15
The court claims that the ex-spouse has “a vested interest in . . . her portion of those benefits as of the date of the court’s decree. That vested interest cannot thereafter be unilaterally diminished by an act of the military spouse.”16 The careful distinction to understand here is that at no point does the court direct the retiree to make these indemnification payments using funds received via disability payments. In fact, they do the opposite. In this particular case, the court felt so strongly that they hadn’t run afoul of Mansell that they purposely included language that “[o]n remand, the trial court shall give effect to its decree without dividing Mr. Johnson’s disability pay.”17 The problem with this ruling is that it creates a de facto indemnification order which will, in reality, cut into the retiree’s disability payments. Very recently, this dilemma was finally addressed by the Supreme Court with more authority than we saw in Mansell.
A Solution: Finally?
The last and most recent USFSPA/pension/disability/indemnification case to reach our highest Court, decided in the summer of 2017, was when a petitioner from Arizona was granted certiorari. When John Howell and his wife Sandra began their divorce proceedings in 1992, he was about one year from retiring from the Air Force. At the time, he had no idea that he’d ever receive any disability payments and agreed to an MDA which awarded Sandra “as her sole and separate property FIFTY PERCENT (50%) of [John’s] military retirement when it begins.”18 For thirteen years, John made his normal payments to Sandra at a rate of 50% of his normal retirement pension. In 2005, John received a 20% disability rating from the VA and elected to waive a portion of his retirement to receive the VA disability pay. Immediately, Sandra’s monthly payments decreased by approximately $125 per month, and she petitioned the Arizona state court to enforce their original agreement to make her whole. Both the Arizona court of appeals and the Arizona Supreme Court agreed with Sandra, and a rule consistent with Johnson , directing that John make Sandra whole and cover the $125 per month. They did not indicate how this money should be paid, and were careful to tiptoe around the issue of disability payments, but nonetheless directed payment.
When the case reached the Supreme Court, they reversed in an 8-0 decision,19 saying that “state courts cannot vest that which (under governing federal law) they lack the authority to give.”20 The point was that under existing federal law, disability benefits are generally non-assignable.21 Further, Justice Breyer, in his majority opinion, confirmed the belief that orders to indemnify ex-spouses in these disability situations are indeed de facto orders which impermissibly cut in to VA benefits. He wrote that the Court won’t be swayed “by describing the family court order as an order requiring John to ‘reimburse’ or to ‘indemnify’ Sandra, rather than an order that divides property. The difference is semantic and nothing more.”22
Conclusion and the Way Ahead
There were warnings in the Howell decision that foreshadowed what we can expect in the future of military divorce cases. Justice Breyer noted that although it was impermissible to order division of military disability pay as martial property, it is certainly conceivable that MDAs will begin to reflect these judicial interpretations in anticipation of disability payments. Service members in this situation, facing both retirement and divorce, who anticipate receiving a disability rating from the VA, may be subject to less than favorable MDAs that attempt to account for these anticipated offsets. This could be accounted for by way of tangible personal property, cash, investments, or other assets. Military family law practitioners and legal assistance attorneys need to be aware of the recent changes to how these laws have been interpreted and stand ready to advise clients of the best ways to be prepared for divorce when disability payments are a stark reality. TAL
MAJ Grimm is the Brigade Judge Advocate, 25th Combat Aviation Brigade, 25th Infantry Division, Schofield Barracks, Hawaii.
Notes
1. Uniformed Services Former Spouses Protection Act, 10 U.S.C. § 1408 (1982).
2. See McCarty v. McCarty, 453 U.S. 210 (1981).
3. 10 U.S.C. § 1408(c)(1).
4. See Military.com, Waiver of Retired Pay , Military.com , https://www.military.com/benefits/military-pay/waiver-of-retired-pay.html (last visited Nov. 7, 2019).
5. Id .
6. 38 U.S.C. § 5304 (2018).
7. National Defense Authorization Act of 2004, Pub. L. No. 108-136, § 641, 117 Stat. 1511 (2003).
8. See Kristy N. Kamarck , Cong. Research Serv., R40589, Concurrent Receipt: Background and Issues for Congress (2019), https://fas.org/sgp/crs/misc/R40589.pdf.
9. Id. at 1, citing DOD Office of the Actuary, FY2017 DOD Statistical Report on the Military Retirement System 199 (July 2018).
10. 10 U.S.C. § 1408 (4)(A).
11. 10 U.S.C. § 1201(b).
12. 10 U.S.C. § 1201(3)(b).
13. Mansell v. Mansell, 490 U.S. 581, 586 (1989).
14. These figures are in no way an accurate estimate of what a retiree with 30% disability would actually receive, but are merely numbers chosen by the author for illustrative purposes.
15. See Johnson v. Johnson, 37 S.W.3d 892 (2001).
16. Johnson , 37 S.W.3d at 897-98.
17. Johnson, 37 S.W.3d at 898.
18. Howell v. Howell, 137 S.Ct. 1400, 1404 (2017).
19. In a decision that was 8-0, “BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, GINSBURG, ALITO, SOTOMAYOR, and KAGAN, JJ., joined. THOMAS, J., filed an opinion concurring in part and concurring in the judgment. GORSUCH, J., took no part in the consideration or decision of the case.” Id.
20. Howell , 137 S.Ct. at 1400.
21. 38 U.S.C. § 5301(a)(1).
22. Howell , 137 S.Ct. at 1406.