How are military pensions divided in a divorce?
What's so special about military families in a divorce?
I'll admit up front that in many respects nothing is different about a military divorce. The same issues that need to be addressed in any divorce apply with equal weight in a military divorce: jurisdiction, division of property and debts, parental rights and responsibilities, and spousal support. (See my Divorce hub for a general discussion of these issues). But there are unique aspects of military service, such as frequent relocation between jurisdictions due to transfer and deployment, and the supremacy of federal law and regulations governing pay, benefits and pensions, that do require special treatment when military couples divorce. This hub starts us off by discussing how divorce courts establish a former spouse's rights to a portion of the military spouse's pension.
How do divorce courts divide military pensions?
Pension plans and retirement accounts are treated as marital or community property by divorce courts, which generally divide the accounts equally between the divorcing spouses (or the marital portion when the pension or retirement account was partially earned before the marriage). Divorce courts are by their nature state courts, with no jurisdiction over matters controlled by federal law. A 1981 United States Supreme Court case held that state divorce courts did not have jurisdiction to award military spouses a share of the military pension.
Military retirement benefits are often the most significant element of property for a military couple that traditionally moves frequently and may not have significant equity in other assets such as a home or real estate, for example. Further, a military pension is earned after twenty years of military service, so it is not unusual that a military member by age 40 or 50 has earned a pension that will pay out thousands of dollars per year for the life of the member and, if elected, a diminished share for the life of the spouse as well. Consequently, the value of the military pension can be huge. Former military spouses, many of whom had given up or limited their own professional and economic opportunities for the sake of the military marriage, were not happy about this Supreme Court decision and made their objections known to lawmakers.
Those objections were heard loud and clear in the halls of Congress, which by 1982 passed a new federal law, the Uniformed Services Former Spouses Protection Act (USFSPA), to afford specific protections to former military spouses that state divorce courts might not otherwise have the authority to recognize or grant. Although a primary focus of the USFSPA is to recognize the spouse's interest in the military retirement system, it also addresses the former spouse's entitlements to other military and retiree benefits, as we will discuss in a future hub.
Understanding the "10-year rule"
Probably the most misunderstood aspect of the USFSPA's treatment of military pensions is the "10-year rule". The USFSPA provides that if a divorce court awards a former spouse a share of the military pension and issues an order to divide the military member's pension upon retirement, the Defense Finance and Accounting Service (DFAS - the agency serving as "paymaster" to the Department of Defense) must recognize that order and divide the member's pension upon retirement if the order meets certain conditions. One of those conditions is that the marriage must have 10 years of "overlap" with the member's military service that is creditable toward retirement. I have seen many clients with a mistaken understanding of this requirement who think that the former spouse has no entitlement to a share of the military pension if married less than 10 years. That is not so. The 10-year period is not a qualifying condition to the court dividing the pension, it is a qualifying condition to DFAS being required to collect the former spouse's share of the pension. It is up to state law as determined by the divorce court to determine what share, if any, the spouse will receive and how it will be paid or collected.
Calculating the spouse's share using a coverture fraction
The divorce court has the authority, and some would say the obligation, to award the former spouse a marital share of the military pension, however slight, to no less degree than dividing the money in the bank account. The court typically divides the military pension by using a coverture fraction that awards the former spouse one-half of the portion of the pension attributed to the marriage.
Military Spouse Coverture Fraction:
1/2 X # yrs married military service / # yrs mil svc at retirement X Monthly pension
Sometimes the period of military service is expressed in months rather than years. For military reservists, the fraction is expressed in retirement points rather than years or months. For a pre-retirement divorce, the coverture fraction will be expressed with a variable in the denominator, since the number of years, months or reserve retirement points at time of retirement will not be known until then. The fractional share expressed must be specific enough to enable the parties and, if applicable, DFAS to determine the former spouse's share of the pension at time of retirement. For a post-retirement divorce, the entire fraction will be known and capable of immediate calculation.
Here's an example of a pre-retirement pension division. If Barney and Betty divorce after 6 years of marriage, all of which was during Barney's 8 years of military service, then the coverture fraction's numerator is 6, while the denominator is unknown at the time of the divorce. If Barney subsequently retires after the minimum 20 years of military service for retirement, and his gross monthly pension is $ 3000, then Betty will receive 1/2 of 6/20 of the pension, or 6/40ths = 3/20ths (15%) of the monthly pension, or $ 450.00. If Barney stays in past the minimum retirement age of twenty to, say, 24 years, then Betty's share will be 1/2 of 6/24ths, or 6/48ths = 1/8 (12.5 %) of the pension. The former spouse "maxes out" if the couple is married for the entire military career, in which case the numerator and denominator of the fraction will both match the period of creditable service, so the former spouse would receive a full one-half of the military pension.
Let's make a deal . . .
When military couples divorce after only a few years of marriage at a young age, quite often they do not view the pension or retirement accounts of sufficient value to justify the time and expense of dealing with the legal formalities outlined here. In such cases, the pension and retirement rights may provide a "bargaining chip" for agreement as to the other elements of the divorce, such as in exchange for giving up any claim to pension or retirement benefits, the military spouse will provide an additional cash distribution, pay for the spouse's relocation expenses, pay for health insurance continuation coverage, etc.
Such agreements can be highly desirable to both parties, since the non-military spouse may be helped far more by immediate benefits than waiting for a share of a military pension that may or may not be earned a decade or two into the future. Likewise, the military spouse may be better served by parting with some cash or property now and have his or her pension and retirement benefits intact for him or herself and a future spouse he or she may be married to at time of retirement.
When an agreement is reached in which the pension is not divided, it is highly advisable to ensure that the agreement expressly says so. Have the agreement acknowledge the military pension rights and that they are waived by the non-military spouse as part of the agreement. Otherwise, a claim may be made to reopen the case later on if it is alleged that the absence of its mention is due to fraud or mistake that should be reopened and corrected.
Military pension division doesn't automatically happen!
Another misperception is that the division of the military pension happens "automatically" or by some military process. I have had former military spouses come in at the time of the member's retirement, sometimes many years after the divorce, to see what they needed to do to collect their share of the military pension, when it is either not mentioned in the divorce decree or nothing has been done to submit the pension order to DFAS. At that point, it is far too late. I have even been quite dismayed to hear that misconception expressed by a professional involved in advising divorcing couples. Nothing could be further from the truth.
The divorce court must award the non-military spouse a share of the pension along with any other division of marital property, and prescribe the details of payment, in order to legally divide the pension. If the award qualifies for collection by DFAS, then the court order must meet several technical requirements and be filed with DFAS within time limits in order to be recognized and enforced by DFAS.
Although there may be circumstances in which you may want to take your chances and represent yourself, this is not one of them. As a matter of fact, although I as a practicing divorce attorney with military experience probably understood this area of the law better than most, I did not presume to draft my own pension division language for my clients' divorce decrees. Instead, I chose to hire pension experts to draft the pension division language for incorporation into the divorce decree in order to identify all issues related to contingencies of military service (death, disability, etc.) and ensure compliance with DFAS laws and regulations. A few hundred dollars spent to do it properly now can save tens of thousands of dollars in the future.
What are Thrift Savings Plans and how are they divided in a military divorce?
Military members, as well as civilian federal employees, are permitted to participate in a federal defined-contribution retirement account called the Thrift Savings Plan, or TSP. It operates very much like an employer's 401k investment account, with the employee or military member able to choose how much pay to contribute to the account and what types of investments to contribute to and maintain.
The TSP is often overlooked as an element of the military retirement package to be divided upon divorce. Like a 401k retirement account, and unlike the military pension, it may be a source of immediate cash payment to the spouse to settle up accounts to effect an equal division of property. Tax consequences must be taken into consideration in dividing the account, since the account may include tax-deferred funds or non-deferred Roth accounts, but those tax effects may be mitigated by drafting for the Court's approval a Qualified Order to divide the funds in accordance with the divorce decree.
Like non-military defined-contribution retirement accounts, the court will need to determine whether all or part of the TSP account is marital or community property subject to division. This is easy when it was all contributed during the marriage, but can be much more difficult when it consists of a combination of non-marital and marital contributions. The former spouse is generally going to be entitled to half of the marital or community property portion of the account.
Where can I find help for my military divorce?
Military legal assistance offices provide general legal advice at no cost to military members, retirees and their dependents. They are a good place to start for some basic information about military members and dependents' rights in a divorce. Depending upon the limitations of each service's legal assistance program, they may or may not be able to assist you with the drafting and filing of documents for your divorce in the divorce court. For that, my best advice is to hire an attorney to assist you. Furthermore, if you are agreeing to divide a military pension or TSP, don't even think about doing it without an attorney's involvement to ensure documents are properly drafted and filed not only with the Court, but also with DFAS or the TSP Administrator for those matters requiring their involvement, within the applicable time limitations. Ask your attorney up front whether he or she has experience with military pensions. Finally, DFAS itself provides many worthwhile resources on its website for military members, spouses, attorneys and other legal professionals (www.dfas.mil).
Dividing military pensions in a divorce has been a controversial, misunderstood and often emotional issue for many years. As developed through federal and state statutes and case law, it actually is quite simple - the military pension is simply one more element of marital or community property that the divorce court is expected to divide. I encourage you to talk to an attorney for specific guidance on your situation to understand what your rights and obligations may be, and devise the best strategy to include it in your divorce settlement.
© 2014 G Laver