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MILITARY PENSIONS - DIVORCE

COMBAT RELATED SPECIAL COMPENSATION

As a result of ongoing military actions the number of service persons currently eligible or who will become eligible in the future to elect one of these "BENEFIT ENHANCEMENTS" is increasing at a rate that merits the attention of the family practitioner. Retired servicepersons eligible to elect between these two enhancements receive a significant increase in their "retirement" benefits.[1]

CONCURRENT RETIREMENT AND DISABILITY PAY (CRDP)

Specific Eligibility Requirements.

  • Regular Component retiree with a VA disability rating of 50 percent or greater.
  • Reserve Component retiree with 20 qualifying years of service ("good years"), has reached retirement age and has a VA disability rating of 50 percent or greater.[2]

COMBAT RELATED SPECIAL COMPENSATION (CRSC)

Specific Eligibility Requirements.[3]

  • Receiving military retired pay
  • Rated at least 10 percent by the Department of Veteran's Affairs (VA) A Reservist that is at least 60 years old or retired under Temporary Early Retirement Authorization (TERA) Has waived VA pay.
  • Filed a CRSC application with her or his Branch of Service

Disabilities that may be considered combat related include injuries incurred as a direct result of:[4]

• Armed Conflict

• Hazardous Duty

• An Instrumentality of War

• Simulated War

Commentary.

The focus of this article is Combat Related Special Compensation (CRSC).

Note:

The CRSC benefit tables are identical to the VA benefit tables.[5] For the year beginning December 2012 the maximum monthly benefit for an unmarried retiree is $2,816.00.

In this article we focus on an active full time soldier, Sergeant First Class (SFC), Bill Jones. His pay grade is E7.

Basic Facts.

  • A divorce action was initiated on June 1, 2013.
  • At the time of divorce Bill manifests good health, however, he did serve two tours in Afghanistan.

The Focus of the Spouses.

A major concern of the divorcing spouses are Bill's benefits based on his military service. The discussion that follows relies on the statistical data found at Appendix A.

Commentary.

The intent of this article is to make clear to the family practitioner an aspect of divorce that is to be considered in matters involving a spouse whose benefits are derived from military service. The concern of the family practitioner (in particular the attorney representing the Former Spouse) is the fact that at the time of divorce the member's future eligibility for CRSC at retirement is generally not ascertainable.

Since eligibility for this expanded benefit is unknown at the time of divorce, the attorney representing the Former Spouse becomes the burdened attorney. Reason: it is this attorney's knowledge and negotiating skills that are a significant factor in the determination of the benefits to be paid to the Former Spouse. Her or his failure to consider and deal with CRSC at the time of divorce may be to the financial detriment of the Former Spouse. It thus becomes an obligation of the attorney representing the Former Spouse to consider CRSC as soon as it is clear that the settlement format will be Deferred Distribution. For Deferred Distribution Settlements the informed and experienced attorney representing the Former Spouse considers the possibility of the member's future retirement eligibility for CRSC and alerts her or his client to the possibility for such benefit enhancements. What is critical in light of the case law on this issue is that the Former Spouse take no action that could be interpreted as a waiver of any form of benefit payable to the member upon retirement.Any pre-election waiver of benefits by the Former Spouse will operate as a bar to participation in subsequently elected Combat Related Special Compensation. Clearly, the attorney representing the member will opt for a different strategy.

Reason for emphasis on CRSC.

As is stated in this article CRSC is not subject to division in divorce. The military will not accept a court order dividing this valuable benefit since it is not a component of divisible retired pay. [6] It is the thrust of this article that 1413a(g) notwithstanding, it is possible to avoid section 1413(g)operating as a bar to a Former Spouse receiving her of his equitable share of post-retirement distributions to the retiree.

Settlement Negotiations Begin (Basic Data found at Appendix "A".

The parties agree on the following.

Bill's total monthly benefit: $1,838.01

(as of the jurisdictions End of Marriage Date)

Coverture Fraction: 88.6878%

Marital Monthly Benefit: $1,630.09

Half of Marital to Jane: $815.05

Present Cash Value of Jane's benefit: $130,973.37

(on valuation date: 6/1/2013)

Immediate Offset Not an Option.

The parties agree that sufficient assets to use the Immediate Offset Settlement Format do not exist. Due to the absence of offsetting assets, they agree that upon Bill's retirement Jane will receive her equitable share of the pension on a monthly basis. A Coverture Fraction, based on service to retirement will be the basis for determining Jane's equitable share. A Military Order is crafted reflecting the intent of the parties.

Alert:

The parties agreement did not mention CRSC. This failure to consider CRSC, in spite of the fact that Bill sustained wounds attributable to his Afghanistan service will impact on any subsequent claim made by Jane.[7] This is not to imply that such omission is fatal to Jane's interest. It is not. To the contrary it need not weaken Jane's claim. Rather it simply makes enforcement of her claim more difficult and costly due to the Marital Settlement Agreement's failureto expressly provide for no dilution of a Former Spouse's equitable share of these benefits regardless of their form.

Jane's Attorneys' Advice.

Based on the finances of the parties, a Deferred Distribution Settlement is determined to be the settlement that is logical for Jane.[8] The reader is alerted to the fact that when rendering advice, Jane's attorney did not consider the possibility of Bill's subsequent entitlement to CRSC. As a result of this omission, no foundation was laid to subsequently argue that there was to be no dilution of Jane's equitable share of distributions.[9] It is this silence on CRSC that will increase Jane's difficulties should Bill elect CRSC.

Bill's Post Divorce Action.

Shortly before his retirement, Bill received notice that he qualifies for a 100% Disability rating attributed to wounds sustained during his two tours in Afghanistan. Bill has a choice to elect either CRDP or CRSC. If Bill elects CRDP his Former Spouse will receive a proportionate share of this additional benefit. However, if Bill elects CRSC, then by federal statute, Jane cannot share in this additional benefit. Bill promptly elects CRSC and receives the full monthly amount from this additional benefit.[10]

Upon Retirement: Allocation of Retirement Benefits.

See Appendix "B" for Calculation Data.

Based on the statistics of this matter, at retirement (Bill's age 60), the division of benefits is as follows.[11]

Total Monthly Benefit: $2,140.43

Cost of FSSA:[12] $139.13

Net Monthly Benefit: $2,001.30

From CRSC $2,140.43

Total Payable $4,141.73

To Bill: $3,357.22

To Jane: $784.51

Bill's Percentage of Benefit: 81.06%

Jane's Percentage of Benefit: 18.94%

Based on an "equitable" Coverture Fraction Jane's equitable share of Bill's Military Benefits "should be" 39.20%.

Commentary:

Had Jane's attorney established a proper foundation, this attorney's efforts to obtain equity would have been greatly simplified. The case, Bandini v. Bandini, Court of Appeals of Indiana,935 N.E.2d 253;October 8, 2010, offers a useful summary of the evolution of "remedial efforts" on this issue. Reading of this decision is suggested.

Toward Equity.

If equity as it existed prior to Bill's waiver, Jane's "equitable share" of the benefits paid is 39.20%.

To offset this inequity Jane's attorney suggests that Jane's portion of the regular pension be increased to: 99.03%

Again, An Absence of Attorney Knowledge.

Unfortunately, an adjustment to Bill's net disposable pay to effect such equity is barred by statute and regulation.[13] Based on Statute and Regulation: an amended Order can increase Jane's equity interest to 50% (an increase of 10.8%). The balance can only come from Bill's CRSC. Clearly, the benefit itself is immune to attachment, however, once the benefit has been received by Bill, many jurisdictions from New Jersey to California (with the noted exception of Kansas)appear to support a Bandini type remedy or some variation of Bandini.

JANE SEEKS A FINANCIAL REMEDY

Computing the Present Cash Value of Jane's Lost Equity.

Net Benefits Payable $4,141.72

Traditional Coverture Fraction 78.40%

Marital Part $3,247.11

Half To Jane $1,623.56

To Jane if CRSC Excluded $784.51

Jane's Lost Benefit $839.05

Interest Rate 5.75%

COLA Rate 2.39% [14]

Jane's VDA 41

Jane's Life Expectancy 41.1

PCV of Jane's Loss $228,140.39

At this point Jane considers a malpractice action against her former attorney to recover what she deems the current worth of her "lost" benefits.

APPENDIX "A"

Bill Jones Regular Component Member

Jane Jones Spouse of Member

Date of Birth 6/1/1973

DIEMS 6/1/1995

(Date of Initial Entry Military Service)

Date Married 6/1/1997

EOMD 2/4/2013

Bill's Retirement Date 6/1/2015

Valuation Date 6/1/2013

Valuation Date Age 40

From VDA to Retirement 2.32 Years

Coverture Fraction 88.6878%

Yrs. Married 15.68

Time in Military 17.68

Pay Grade E7

Monthly Pay $4,158.40

Pension Benefit $1,838.01

Marital Benefit $1,630.09

Jane's Portion $815.05

Interest Assumption 5.75%[15]

Immediate Annuity Cost $149,112.30 [16]

Discount Factor 87.8354%

Present Cash Value Jane's portion $130,973.37

APPENDIX "B"

Allocation of Benefits, Retirement Benefit Only.

Based on Traditional Coverture Fraction at Retirement.[17]

Actual Benefit @ 60 $2,140.43

Cost of FSSA $139.13

Net Mo. Benefit $2,001.30

Coverture Fraction 78.40%

Numerator 15.68 Years

Denominator 20 Years

Marital Benefit $1,569.02

Half of Marital to Jane $784.51

Balance to Bill $1,216.79

Jane's Percentage39.20%

Bill's Percentage 60.80%



[1] As is developed in this article, CRSC is not deemed a "retirement" benefit.

[2] Qualifying year. The day a serviceperson enters reserve status is considered her or his anniversary date and retirement year. From that point on, she or he must accrue a minimum of 50 retirement points in a retirement year in order to have a "qualifying year" toward retirement.

[3] For full details see: 10 U.S.C. 1413a.

[4] Note the retiree must file for CRSC (with the appropriate branch of service). No filing is required for CRDP.

[5] The current and historical tables are found at: benefits.va.gov/COMPENSATION/resources_comp01.asp

[6] See 10 U.S.C. 1413a(g).

[7] This need not be the controlling factor. It is suggested that attorneys representing Former Spouses, recognize the necessity of establishing a basis for the equitable division of benefits regardless of the members apparent health at the time of divorce. Being cautious not to exclude any known or potential entitlement from the agreement.

[8] Please note: "logical" and "optimal" need not be congruent.

[9] To some the use of the term "omission" may appear strong. Clearly the family practitioner cannot be expert in all things, yet, should she or he at least be aware of the need in cases involving complex plans to utilize the advice of an expert.

[10] Note: CRDP is subject to Federal Income Taxes. CRSC is not.

[11] Age 60, is the normal retirement age for Reserve Component Soldiers.

[12] Former Spouse Survivor Annuity.

[13] See 10 U.S.C. 1408(e)(1). In relevant part this provides:

The total amount of the disposable retired pay of a member payable under all court orders… may not exceed 50 percent of such disposable retired pay.

Also see: Financial Management Regulation (FMR); 290901.

Also see for the total maximum limit regarding the retiree's net disposable pay: 1408(e)(4)(B)which reads as follows:

Notwithstanding any other provision of law, the total amount of the disposable retired pay of a member payable by the Secretary concerned under all court orders pursuant to this section and all legal processes pursuant to section 459 of the Social Security Act (42 U.S.C. 659) with respect to a member may not exceed 65 percent of the amount of the retired pay payable to such member that is considered under section 462 of the Social Security Act (42 U.S.C. 662) to be remuneration for employment that is payable by the United States.

[14] Average Military COLA: 1996-2013.

[15] This is the current actuarial assumption of the military

[16] This is the sum required at Bill's retirement to purchase a monthly annuity of $1,913.23.

[17] For a good discussion of the "Traditional Coverture Fraction" see Marx v. Marx, 627 A.2d 691.