Military pensions are subject to unique restrictions when it comes to division in divorce. They are governed by a variety of military regulations, state divorce laws and procedures, as well as Federal statutes. If you have a client who is the spouse of an employee in the military, there are some things regarding their retirement that you need to know so that you can help protect your client’s share of their benefits.  

Armed Forces employees who have 20 or more years of service are eligible to receive a pension based on a percentage of their basic pay, and if they remain in for 40 years, they are eligible for 100% of their basic pay. This pension starts the day the military employee retires, no matter what their age. That means collecting a regular retirement pension can begin as early as 37 years old. This pension amount will grow with a cost of living adjustment each year. Payments range from about $1,200 to several thousand dollars per month. Given a 40-year life expectancy after retirement, a military pension asset can be worth from $590,000 to more than $2 million.  

In order for a military pension to be divisible, the parties must have been married for 10 years that overlap 10 years of military service (either active, reserve or a combination). In fact, The Defense Finance & Accounting Service (DFAS) will reject any order that attempts to divide the pension if the 10/10 rule is violated.  For all plans, years of service includes credit for each full month of service as one-twelfth of a year.  What does that mean for clients? If one party has a military pension that isn’t divisible under DFAS rules, it still is a marital asset. The best option would be to retain an expert to value the pension and provide an offset within the marital estate. 

Military retired pay is a federal government entitlement and not actually a pension plan. The Uniform Services Former Spouses’ Protection Act (USFSPA) does not automatically entitle a former spouse to a portion of the member’s retired pay. In order to properly divide military retirement benefits, a former spouse must be awarded a portion of the member’s retired pay classified as property (as opposed to income) in a Military Pension Division Order (MPDO). Also acceptable is a certified copy of a court order sufficiently outlining the award expressed in dollars, or as a percentage of disposable retired pay to be disbursed to both parties.  When dividing benefits, the parties should address whether or not the former spouse will share proportionately in cost-of-living adjustments, survivor’s benefits, and what will happen if the member receives disability pay.

The Uniformed Services Former Spouses’ Protection Act (USFSPA) (10 U.S.C. 1408) allows state courts in a divorce to award up to 50% of a military member’s retired pay (or 65% if it includes court-ordered child support). A former spouse could be awarded 100% of the military retirement benefits, but would need to collect the additional 50% directly from the retired military member.  Since DFAS will only award 50% as division of retired pay, if there is more than one divorce, it’s first come, first serve. For example, if a court awards ex-spouse number one 35% of retired pay, and another court awards ex-spouse number two 35% of retired pay, then ex-spouse number one will receive 35% and ex-spouse number two will receive 15%. It is not possible to create a “separate interest” retirement for the spouse; only the benefit stream can be divided. 

Unless insured, when a military pensioner dies, the pension benefits cease. Many spouses think that if they were the beneficiary of the Survivor Benefit Plan while married, they will remain so upon divorce. This is not true. For a former spouse to continue receiving payments after the death of a service member, the former spouse must be named in a Survivor’s Benefit Plan (SBP). The MPDO (or other court order) alone is insufficient to initiate coverage. An election must be filed within 1 year of the date of the court order for divorce. There are no exceptions to this one-year rule, and if the member fails to make a timely election; the former spouse’s payments will cease upon the member’s death. The SBP cannot be divided between a current spouse and former spouse; i.e.; if the service member remarries the spouse at the time of death and a former spouse cannot both receive benefits. By making this election it bars the member’s future spouse from receiving SBP benefits. If a former spouse will be named in the SBP, the parties will also need to determine who will pay for the premium. This is needed because the SBP premium is deducted from gross retirement pay before the division of “disposable retirement pay.” The SBP is available to active duty members and every few years “open enrollment” for retired members is available. 

Nearly all active duty service persons carry SGLI. It typically provides $250,000 of life insurance benefits for the service person’s designated beneficiary. Beneficiaries can be parents, children, spouse or former spouse. This is a method of providing insurance benefits to secure at least part of the military pension.  

If a service member has been found to be physically unfit for further military service and meet certain standards, they will be granted a disability retirement. The member has the ability to exchange retirement pay for tax-free disability pay. Disability pay is not divisible under federal law and thus cannot be assigned to a former spouse. However, it can be subject to garnishment for alimony or child support. So, if a service member gives up retirement pay in exchange for disability pay, the amount of retirement pay both spouses will receive is reduced.  Any order should address this possible reduction in benefits due to receipt of disability pay. 

A survivor benefit is the amount paid to a beneficiary after the death of the plan participant. In the case of military pension benefits, this coverage is eliminated if the divorced spouse remarries before age 55. Remarriage after age 55 does not affect the ability to collect survivor benefits.  

Under a set of complex federal regulations, a retiring military member may merge his/her military retirement benefits with another federal retirement plan.  Careful drafting of the marital settlement agreement and final judgement is essential to preserve the nonmilitary spouse’s interest in the retirement benefit. 

Defense Finance and Accounting Service: http://www.dfas.mil/retiredmilitary.html 

Military Advantage: http://www.military.com/benefits/military-pay/the-military-retirement-system.html 

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