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MILITARY – RETIRED PAY- DIVORCE NEW FEDERAL ACT OVERRIDES STATE DIVORCE LAW ​PART ONE


Immediate Clarification.

The family law practitioner when corresponding with any military entity regarding the division of a Service Member's retirement benefits, avoids use of the term "pension". The preferred term is "Retired Pay", not a traditional Pension.

The military deems a Service Member's Retirement Pay to be a statutory entitlement. To comply with Military Order Qualification Procedures, the experienced practitioner conforms all relevant documents to the applicable Federal Statutes and Guidance as found in the Military's Financial Management Regulations (FMR) and Federal Statutes.[1]

The practitioner avoids use of terminology unacceptable to Defense Finance Accounting Service (DFAS).[2] The reader will note that the term "pension" is avoided in this article.

The correct term to describe a military retirement benefit is "Retired Pay". An alternate acceptable term to use when preparing a Qualified Domestic Relations Order is, "Disposable Retired Pay". Disposable retired pay is defined as:

gross retired pay less authorized deductions

The authorized deductions are:

  • Amounts owed to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay.
  • Forfeitures of retired pay ordered by court-martial.
  • Amounts of retired pay waived in order to receive compensation under Title 5 (federal civilian employment) or Title 38 (Department of Veterans Affairs) of the United States Code.
  • To provide an annuity to a spouse or former spouse to whom payment of a portion of such member's retired pay is being made pursuant to a court order
  • To provide a Former Spouse Survivor Annuity (Survivor Benefit Plan), pursuant to a court order

National Defense Authorization Act, 2017 (ACT).

This article seeks to clarify the ACT, because of its impact on military divorces in all fifty states. The relevant section of the Act (§641) became effective for ALL divorces on or after December 23, 2016.[3]

Act §641, amended 10 U.S.C. 1408, inserting new §10 U.S.C.1408(a)(4). The practical impact of this new section of the ACT, is to deny use of either a Traditional "Coverture Fraction" or as it is also termed "time rule", for the division of a Service Member's (SM) Retired Pay (read pension) for purposes of determining the amount of monthly benefit assignable to a Former Spouse (FM).

The New Certainty!

For all Court Orders dealing with the division of a Service Member's Retired Pay, use of any language that provides for recognition of benefit accruals subsequent to the Date of Divorce results in Defense Finance Accounting Service (DFAS) rejecting your proposed Court Order. Attorneys and Courts MUST conform the division of a Service Member's Retired Pay to Act §641.

The language found in a recent Defense Finance Accounting Service "Notice of Statutory Change" updated on September 17, 2017, amplified the constraints imposed by the ACT:

…the military member's disposable income is limited to "the amount of basic pay payable to the member for the member's pay grade and years of service at the time of the court order" and increased by the cost-of-living amounts granted to military retirees from the time of the (divorce) to the date the member retires…[4]

Defense Finance Accounting Service Rules and Guidance are based on the Service Member's date of initial entry into military service (DIEMS Date) :[5]

  • SM entering service prior to September 8, 1980
  • SM entering service on or after September 8, 1980

The guidance presented in this article is limited to Service Member's entering service on or after September 8, 1980 and is relevant to the following classes of "Retired Pay".

  • Retired pay for Regular service (Regular Component or full time member)
  • Retired pay for non-Regular (Reserve/Guard) service

To illustrate and clarify the impact of Act §641, we offer a simple fact pattern.[6]

Service Member (SM) Steve Springfield

Former Spouse (FS) Jane Springfield

Steve's Date of Birth 7/1/1983

Date Initial Entry Military Service (DIEMS) 7/1/2003

Date of Marriage 7/1/2005

Final Divorce Date 7/1/2018

Pay Grade at Divorce E6 [7]

High Three Year Average Pay 7/1/2018 $3,712.95 per month

From this data and a recent Department of Defense, Office of the Actuary report, the following illustrations are constructed. The salary progression used by the Department of Defense's Actuary and in our calculations of the projected Retired Payments was 3.25%.

Our intent in preparing this article is to alert attorneys representing either spouse to the ACT's substantial financial impact. Because of the ACT, the Service Member will be significantly advantaged and the Former Spouse will sustain major financial loss. [8] This observation is not an expression of opinion. This is fact. You may agree or disagree with this outcome, however the facts are clear. One spouse is significantly advantaged and the other spouse is significantly disadvantaged by the ACT.

The magnitude of Financial loss to a Former Spouse depends on the specifics of each matter. However, the percent of loss to the Former Spouse calculated for this article is typical. Because of the ACT, the Former Spouse will always be the disadvantaged spouse.

To make clear the financial impact of the ACT, we begin with an illustration of the benefit accrued up to the date of divorce. This may be termed the "Referencing Benefit". This monthly benefit will be the baseline against which we illustrate the impact of the ACT on each spouse.

Basic "Reference Point" Monthly Retirement Pay for a Regular Component (Full Time) Service Member and calculated as of Date of Divorce.

Date of Divorce July 1, 2018

Monthly Retirement Allowance at Date of Divorce $1,368.75

Coverture Fraction 86.67%

13 ÷ 15 = 86.67%)

Marital Retirement Allowance $1,186.25

Half of Marital to Wife $593.13

Former Spouse Percent of Full Retired Pay 43.33%

ALERT.

The above award to the Former Spouse was calculated as of the date of divorce. If the matter follows the pre ACT, Coverture Fraction (Time Rule), the size of the Former Spouse's Retirement Allowance increases over time. However, because of the ACT, these illustrations show that the Former Spouse's Retired Pay, is fixed and unchanging as of the Date of Divorce.

The next calculation shows what the Former Spouse would have been entitled to upon the member's retirement after twenty years of service.

Monthly Retirement Allowance $2,096.38

Coverture Fraction 65%

Marital Retirement Allowance $1,362.64

Half of Marital to Wife (the Pre Act Benefit) $681.32

HOWEVER, BECAUSE OF THE ACT, we find the following allocation of Retired Pay.

Full Retired Pay at 20 Yr. Retirement $2,096.38

Retired Pay to Former Spouse $593.13

Former Spouse Percent of Full Retired Pay 28.29%

Full Retired Pay at 25 Yr. Retirement

Monthly Retirement Allowance $3,642.58

Retired Pay to Former Spouse $593.13

Former Spouse Percent of Full Retired Pay 16.28%

Based on these illustrations it is clear that the pre ACT size of Former Spouse's portion of the Service Member's Retirement Pay, based on the Coverture Fraction is significantly greater than a Former Spouse's post ACT Retired Pay. The ACT gives the Former Spouse a "Fixed Amount". The Service Member's Retired Pay alternatively, increases each year up to retirement. It then continues to increase due to statutory COST of Living Increases.

These history of increases since 2000:

Year Increase Year Increase

2000 2.00% 2010 0.00%

2001 2.50% 2011 0.00%

2002 2.00% 2012 2.60%

2003 1.40% 2013 1.70%

2004 2.00% 2014 1.50%

2005 2.00% 2015 1.70%

2006 3.10% 2016 0.00%

2007 2.30% 2017 0.30%

2008 2.00% 2018 2.00%

2009 4.80%

Clarification.

The reader will note that as a result of the ACT, the monthly benefit calculated for the Former Spouse does not change. This is a deliberate outcome of the revised law. Additional complications of a "Fixed Monthly Payment" to the Former Spouse will be discussed in Article II, on this topic. It merits separate treatment, because of its complexity and the fact that many calculations are involved.

The magnitude of this loss to a Former Spouse grows during the retirement period.

To illustrate this growing loss to a Former Spouse, the loss is now given for:

  • Ten Years after Retirement
  • 20 Years after Retirement

Full Retired Pay Retirement Plus ten years $4,662.93 [9]

Retired Pay to Former Spouse $593.13

Former Spouse Percent of Full Retired Pay 12.92%

Full Retired Pay Retirement Plus twenty years $5,968.95 [10]

Retired Pay to Former Spouse $593.13

Former Spouse Percent of Full Retired Pay 9.94%

This expanding loss to the Former Spouse is fully attributable to the ACT. Moreover, as the above sequence illustrated: the adverse financial result to the Former Spouse that is attributable to the ACT increases over time.

This continuing loss to the Former Spouse is attributed solely to the ACT. The ACT mandates a fixed, unchanging monthly Retirement Allowance to the Former Spouse.

Commentary.

Are the results of the ACT as illustrated, fair and equitable? Alternatively, is the ACT a devastating blow to the financial health of the Former Spouse? This article accepts the ACT as the current mandatory process for the measurement of the SM's divisible Retirement Allowance. Our intent is to make clear how this process impacts on the respective spouses. It is for you to decide if the operation of the ACT is:

  • Fair and Equitable
  • Financial Disaster for the Former Spouse

The next article in this series discusses how an attorney representing Former Spouse can achieve mitigation for the Former Spouse.

Final Cautions.

If you have a military divorce and the date of divorce is on or after December 23, 2016, be clear, Defense Finance Accounting Service will reject your Order if it is contrary to ACT §641. It is mandatory that settlements on or after December 23, 2016, involving the division of Retired Pay be conformed to the ACT.

It is suggested that Attorneys representing a Former Spouse make clear to the client, at the outset the adverse impact of a Deferred Distribution/QDRO settlement. In Article II of this series the reasons for Former Spouse opting for an Immediate Offset Settlement instead of a Military Order (Deferred Distribution Settlement) will be discussed in detail.



[1] Generally Title 10 U.S.C.

[2] The military entity most likely to be involved in the division of the member's "disposable retired pay" incident to divorce.

[3] P.L. 114-328.

[4] This COLA is not the post retirement COLA. Rather this is increases in grade due to possible periodic in-grade pay increases. Because of the mathematics involved in illustrating this point, it will be covered in another article.

[5] DIEMS: Date of Initial Entry Military Service. This date has many uses. Attorneys are advised to obtain this date at the start of any matter involving a SM.

[6] Dates are conformed for ease of calculation and illustration.

[7] Designations in Different Branches with Rank "E-6"

E6: E6 E6

Army, Marine Corps. Air Force Navy

Staff Sergeant Technical Sergeant Petty Officer,1st Class

[8] Former Spouse for military matters is the equivalent of "Alternate Payee" for ERISA Plans and a QDRO.

[9] Based on Retirement after 25 years of service.

[10] Based on Retirement after 25 years of service.