Qualified Domestic Relations Orders and Pension Evaluations
Pension Evaluations Qualified Domestic Relations Orders QDRO's QDRO Tutorial Pension Evaluation Contact Us

Name:
Email:
Phone:
--
Message:
Make a Payment
We support Apraxia-KIDS

Military Divorce

Repeal of the Traditional Coverture Fraction

Federally Mandated - FROZEN BENEFIT FORMULA

New Calculation - HYPOTHETICAL BENEFIT

As a result of National Defense Authorization Act 2017 (NDAA17), Domestic Relations Orders for Active Members of the Military(Reserve or Regular), are prohibited from using the "Traditional" Coverture Fraction Formula.[1] All Orders submitted to Defense Finance Accounting Service (DFAS) containing a Coverture Fraction formula will be rejected. [2]

The Military treatment of an award of Retired Pay to a Former Spouse is now limited to the Federally Mandated "Frozen Benefits Formula". Prior to enactment of NDAA17 only five states followed this rule:

Florida, Kentucky, Oklahoma, Tennessee, Texas.

Forty-five other states follow the "Traditional" Coverture Fraction or "Time Rule Formula".[3] After December 23, 2016, all Military Orders must conform with the Frozen Benefits Formula! It is now a fifty-state mandate. [4]

The key provision of NDAA17 regarding the "Traditional" Coverture Fraction and its prohibition in Military Domestic Relations Orders is found at Title 10 U.S.C. 1408(a)(4)(B)(i), which provides:

…in the case of a member not described in clause (ii), the amount of Retired Pay to which the member would have been entitled using the member's Retired Pay base and years of service on the date of the decree of divorce, dissolution, annulment, or legal separation (emphasis mine), as computed under section 1406 or 1407 of this title, whichever is applicable, increased by the sum of the cost-of-living adjustments

Based on the above citation from the Internal Revenue Code a Former Spouse's entitlement to a Member's Retired Pay (Read Pension), when compared to a Coverture Fraction Formula Award been substantially reduced.

To appreciate the magnitude of this diminution of the Retired Pay permitted to a Former Spouse consider the following illustration.

Fact Pattern for Harrison Maxwell, U.S. Army. Regular Component.

Former Spouse: Jane Maxwell

Date of Birth 9/1/1981

Date of Marriage 9/1/2004

DIEMS* 9/1/2006

DIVORCED 9/1/2019

Pay Grade E-7 SFC**

*Date Initial Entry Military Service [5]

**Sargent First Class

Age at Divorce 38 Years

Life Expectancy at Divorce) 45.46 Years

Coverture Fraction at Divorce 100%

Numerator

9/1/2006 9/1/2019 13 Years

Denominator

9/1/2006 9/1/2019 13 Years

The formula for this Regular Component Member is:

2.5% multiplied by years of service multiplied by 3-year average pay.[6]

Applicable Average Pay for this Member (Rank E-7):

Year Monthly Pay

2017 $3,796.00

2018 $3,968.00

2019 $4,296.00

Based on the above, Harrison's monthly benefit at divorce was calculated as follows:

*means "multiplied by"

$4,020.00 * 13 years * 2.5% = $1,306.50

Note Harrison's accrued Retired Pay was fully acquired during marriage. Thus, the Wife's award pursuant to the Frozen Benefits Formula is calculated as follows:

$1,306.50 * .5 = $653.25

Alert.

This award to the wife, determined at the time of divorce in 2019 is not payable to her until 2026.[7] The impact of this "FREEZE" is that the Former Spouse's award is fixed in 2019. Seven years later, her award is the same (Frozen Benefit Formula).[8]

Alternatively, if the Coverture Fraction was used, the award to the Wife would be calculated as follows:

Alert:

A Regular Component Member may retire at any age upon attaining twenty years of military service. Thus, Harrison's Retirement Age/Date is: Age 45 on 9/1/2026

The practitioner recognizes that because of NDAA17, Jane Maxwell's benefit is fixed and unchanging. To appreciate the magnitude of the difference between the Traditional Coverture Fraction formula (Time Rule) and the Frozen Benefits Formula the following is offered.

As part of this discussion the illustration that follows contrary to the Frozen Benefits Rule shows the growth of Harrison's benefits over time (which is barred by the Frozen Benefits Rule). This chart also estimated the Final Pay and Benefits of Harrison Maxwell under the "Traditional" formula.

Clarification. The following Chart shows benefit growth under the Traditional Formula. This growth is attributable to the illustrated pay progression, which was based on the post 2019 pay.

Year Monthly Pay

2017 $3,796.00

2018 $3,968.00

2019 $4,296.00

2020 $4,446.36

2021 $4,601.98

2022 $4,763.05

2023 $5,795.94 Promoted to E-8

2024 $5,998.80

2025 $6,208.76

2026 $6,426.06

Based on the above chart Harrison's Monthly Retired Pay after twenty years of service could be calculated as follows:

2.5% * 20 years * $6,211.20 = $3,105.60

Next See: The Calculation of Jane Maxwell's share as a result of the Frozen Benefits Formula.

Traditional Coverture Fraction 65%

Numerator 9/1/2006 9/1/2019 13 years

Denominator 9/1/2006 9/1/2026 20 years

Marital Monthly Benefit $2,018.64

Half of Marital to Wife (Traditional) $1,009.32

Frozen Benefits Formula Award to Jane was: $653.25

This represents a loss of benefit to Jane of: 35.28%

Comment.

This loss to Jane is not a one-year, one time event. Rather this is a loss that increases annually. The magnitude of this financial loss to Jane is illustrated below.

Clarification.

The reader will note in the chart below that subsequent to retirement, Jane's monthly benefit is increasing annually. Be clear, Jane's benefit is Frozen from the end of marriage up to the date of Harrison's Retirement. Only at retirement is Jane's benefit permitted to increase. These increases are attributable to a separate section of the Internal Revenue Code that authorized post-retirement adjustments to the Former Spouse's Monthly Allowance due to "post retirement changes in the Cost of Living (COLA). [9]

Discussion.

Based on Harrison's actuarial life expectancy (at divorce), the monthly benefit stream to his Former Spouse was estimated. In this illustration the post retirement Cost of Living Adjustment (COLA) estimate was based on the average of the Consumer Price Index for the period 2000-2018 (2.18%). Again, be clear, under the Traditional Formula at age 45, Jane's starting monthly benefit would not be $653.25. Rather it would be: $1,009.32!

From the chart you will notice that Jane would not reach her age 45 Traditional monthly benefit until age 63.

Age Frozen Benefit Formula Coverture Fraction

45 $653.25 $1,009.32

46 $669.41 $1,042.12

47 $685.96 $1,075.99

48 $702.92 $1,110.96

49 $720.31 $1,147.07

50 $738.12 $1,184.35

51 $756.37 $1,222.84

52 $775.08 $1,262.58

53 $794.25 $1,303.62

54 $813.89 $1,345.98

55 $834.02 $1,389.73

56 $854.64 $1,434.89

57 $875.78 $1,481.53

58 $897.44 $1,529.68

59 $919.63 $1,579.39

60 $942.37 $1,630.72

61 $965.68 $1,683.72

62 $989.56 $1,738.44

63 $1,014.03 $1,794.94

64 $1,039.11 $1,853.28

65 $1,064.81 $1,913.51

66 $1,091.14 $1,975.70

67 $1,118.13 $2,039.91

68 $1,145.78 $2,106.21

69 $1,174.11 $2,174.66

70 $1,203.15 $2,245.33

71 $1,232.90 $2,318.31

72 $1,263.40 $2,393.65

73 $1,294.64 $2,471.44

74 $1,326.66 $2,551.77

75 $1,359.46 $2,634.70

76 $1,393.09 $2,720.33

77 $1,427.54 $2,808.74

78 $1,462.84 $2,900.02

79 $1,499.02 $2,994.27

80 $1,536.09 $3,091.59

81 $1,574.08 $3,192.06

82 $1,613.00 $3,295.80

83 $1,652.89 $3,402.92

84 $1,693.77 $3,513.51

Over her lifetime the total dollar difference in amount received is:

Frozen Benefit Formula Total Received $525,219.96

Coverture Fraction Formula Total Received $966,787.07

Real Dollar Loss to the Former Spouse: $441,561.11

Based on this the cost of NDAA17 to Jane is almost half a million dollars!!!

The increased real dollars that could

Have been realized by Jane was: 84.07%.

To many this difference is a life altering loss. This loss presents the question. Can this disparity be mitigated? It cannot! By Federal Mandate the Deferred Distribution Settlement method is prohibited. Defense Finance Accounting Service is rigid in its enforcement of the Federal Mandate.

Outcome.

From this date forward, the divorced Former Spouse of a Military Member becomes part of a financially disadvantaged class. Absent either a Supreme Court decision voiding this section of law or remedial Congressional action, this Former Spouse is without recourse.

Final Guidance.

To comply with NDAA17, the practitioner must conform the Military Order to one of the following formats. It will be your task to master each of these three formats.

1. A fixed amount, a percentage, a formula or a hypothetical that the former spouse is awarded;

2. The member's high-3 amount at the time of divorce (the actual dollar figure);

3. The member's years of creditable service at the time of divorce; or in the case of reservist, the member's creditable reserve points at the time of divorce.

Consult Troyan for drafting support regarding these three formats.



[1] This Act's language was modified by NDAA 2018 at section 624.

[2] This article does not apply to the Blended Retirement System. This is the Retired Pay

system for all Service members who entered military service on or after January 1, 2018.

[3] Each state also references the "Time Rule" as a specific case, e.g. N.J. it is "Marx", N.Y. it is Majauskas, CA it is Brown.

[4] Attorneys will recall, that the "Traditional" Coverture Fraction, is based on the actual benefit paid to the participant at retirement. Pursuant to the "Frozen" Benefit Rule, the basis for the calculation of the marital share is the benefit accrued up to the date of divorce.

[5] In some cases, the "Pay Entry Base Date" will be applicable.

[6] A different formula is applicable to members whose DIEMS date is prior to September 1, 1980.

[7] Assuming Harrison retires at the completion of 20 years of service. Should he not retire after 20 years of service, then the Former Spouse must wait until his actual retirement date (but still with the benefit fixed in 2019)

[8] This comment actually understates the 2026 benefit to Wife. Her benefit is adjusted by COLA "increases in grade" up to retirement. To show this small progression would have called for more "math" and "in grade" explanations. As a result of this process Wife's benefit could be slightly larger than herein indicated.

[9] Title 10 U.S.C. 1401(a)(b)(1).