What Happens to a Military Pension in Divorce?
Courts can divide military pensions during divorce
During a divorce proceeding, the court has the power to divide and assign marital property between spouses. Washington, DC is an “equitable distribution” state, which means that when dividing marital property during a divorce, the court will divide the assets and debts in a manner that is fair and equitable under the circumstances. Generally, marital property includes all income, debts, and assets that were acquired during the marriage, regardless of how they are titled. While some gifts and inheritances that were given to only one spouse during the marriage may remain separate property, almost every other asset, including retirement accounts, will be considered marital property. Military pensions are no exception. Most active duty military service members who have served for at least 20 years are eligible to receive a pension immediately upon retirement. Members of the reserves and National Guard may also be eligible to receive a pension at age 60 after they have acquired a sufficient number of “points” toward retirement. Military pensions can amount to significant assets for divorcing couples and the issue of dividing the pension should be addressed at the time of the initial divorce so that the issue is not inadvertently waived by the non-member spouse.
The Uniformed Services Former Spouse Protection Act ("USFSPA")
The Uniformed Services Former Spouse Protection Act (“USFSPA”) is a federal law that allows state courts to award former military spouses a portion of the service member’s “disposable retired pay” according to the applicable state law. The amount awarded to the former spouse is determined either by agreement of the parties or by the court. If the parties are unable to agree, the judge in a Washington DC divorce action will determine the amount of the award based on the principles of equitable distribution, just like other marital assets. Most likely, the judge will consider the amount of the pension, the length of the marriage, and the availability of other retirement funds. Significantly, the USFSPA excludes several types of military pay from “disposable retired pay” including: (1) military disability retirement pay, and (2) VA disability compensation. These types of retirement pay are not subject to division in a divorce. Former spouses should be aware that eligible service members can elect to waive a portion of their regular retirement pay in order to receive these disability payments instead, thus reducing the former spouse’s share of the divided pension. If this were to happen, the former spouse should ask the court to consider awarding spousal support or some other marital assets to offset this loss. If the divorce occurs before the service member is retirement-eligible and the former spouse is concerned that the service member spouse might waive retirement pay in the future, the non-military spouse could seek to include a special provision in the divorce decree that would award spousal support in the future in the event of a retirement pay waiver. Alternatively, the non-military spouse could ask the court to retain jurisdiction over the divorce so that the court could order spousal support in the future, if it becomes necessary. Regardless of the course of action chosen by the parties, it would be wise to raise the issue at the time of the divorce so that the issue is not waived.
The 10-10-10 Rule
Once the judge has determined how a military pension will be divided, the court can issue a “Military Pension Division Order.” The agency that is responsible for issuing military retirement pay, the Defense Finance Accounting Service (DFAS) might not be able to issue the former spouse her portion of the pension directly, unless the former spouse meets the requirements of the “10-10-10 rule.” In order to qualify for direct distribution of military pension payments, the 10-10-10 rule requires that the couple was married for at least 10 years and that at least 10 years of the marriage occurred during the 10 years or more that the service member was serving in the military. If the rule has been met, the former spouse can send a certified copy of the Military Pension Division Order to the Uniformed Services Designated Agent, along with the DD Form 229333 “Application for Former Spouse Payments from Retirement Pay.” After the form is processed, the government will make payments directly to the non-military spouse, and each party will receive an IRS Form 1099-R for the retirement benefits they receive.
Significantly, the 10-10-10 Rule applies only to the method of payment of the divided retirement benefit and does not impact the entitlement to the benefit itself. For those who do no meet the requirements of the rule, the court can still issue the order dividing the retirement benefit, but the full payment will go to the military spouse and it will be up to him or her to make monthly payments to the non-military spouse. Especially if the amount of the non-military spouse’s benefit is relatively small, the parties may find that the perpetual entanglement of this monthly check-writing process may not be worth the hassle. Alternatively, the parties could agree to replace the perpetual payment options with some equivalent asset.