Bar News - July 19, 2017
Back in the Trenches: New NH Supreme Court Decision Affects Military Benefits in Divorce
By: Anna Goulet Zimmerman
When a military spouse is, or will be, receiving military retirement benefits, there are many limitations to consider that don’t generally apply when dealing with civilian pensions. I covered this topic in detail in “Divorce in the Trenches,” an article published in the summer 2012 issue of the NH Bar Journal. An update is necessary in light of the US Supreme Court’s decision in Howell v. Howell, issued on May 15, 2017.
The Uniformed Services Former Spouses’ Protection Act (USFSPA) authorizes state courts to “treat disposable retired pay payable to a member… either as property solely of the member or as property of the member and his spouse in accordance with the law of the jurisdiction of such court.” 10 USC Section 1408(c)(1). The term “disposable retired pay” is defined as the total monthly retired pay to which a military member is entitled, less amounts which:
(i) are owed by that member to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay;
(ii) are deducted from the retired pay of such member as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38;
(iii) in the case of a member entitled to retired pay under chapter 61 of this title are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member’s disability on the date when the member was retired (or the date on which the member’s name was placed on the temporary disability retired list); or
(iv) are deducted because of an election under chapter 73 of this title 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 under this section.
One of the most common of these deductions is the “VA waiver.” This occurs when a military member agrees to waive a portion of his or her retirement pay in exchange for the receipt of Veterans Affairs disability benefits. The VA rates disability in 10-percent increments. If the disability is 50 percent or higher, then the VA benefit is paid in addition to the regular retirement pay, without the corresponding deduction. (38 CFR Section 3.750). A schedule of the total benefit to be paid can be found on the US Department of Veterans Affairs website.
The election to accept VA benefits in lieu of retirement is voluntary and results in the same gross pay, but is attractive to the military member as the funds received for disability are not taxed. Thus, for example, veterans with a 30 percent disability and one child would receive $632.12 from the VA and would have the same amount deducted from his or her retirement pay. Since only the disposable retired pay is subject to division in a divorce, the former spouse is not entitled to a percentage of the $632.12 – although the former spouse would have been entitled to a percentage if received as retired pay.
The issue of lost retirement because of an election to accept VA disability benefits came before the US Supreme Court in Howell v. Howell, an appeal from the Arizona Supreme Court decision in In re Marriage of Howell (2015). The Howells divorced in 1991 and the wife, Sandra, was awarded 50 percent of her husband, John’s, military retirement, the receipt of which started in 1992. These payments continued without incident until John was found to have a 20 percent disability which he unilaterally elected to accept, reducing his military retired pay by $255 per month (the amount of the VA payment). Because only disposable retired pay can be divided, the result was that Sandra received $127.50 less per month and John received $127.50 more. The Arizona trial court ordered John to pay Sandra the $127.50 difference, and the Arizona Supreme Court upheld this result.
The US Supreme Court issued its unanimous decision May 15, framing the question as follows: “Long after the divorce, the veteran waived a share of the retirement pay in order to receive nontaxable disability benefits from the Federal Government instead. Can the State subsequently increase, pro rata, the amount the divorced spouse receives each month from the veteran’s retirement pay in order to indemnify the divorced spouse for the loss caused by the veteran’s waiver?” The Court found that the effect of the lower court’s decision was a division of more than just the allowed “disposable retired pay” and, accordingly, was prohibited by federal law. John could not be forced to pay Sandra for the lost retirement benefit.
Some questions remain unresolved. The Supreme Court did not definitively say whether John could have been ordered, before accepting the VA waiver, not to do so. The Supreme Court did, however, suggest that this might not be allowed. The Court noted: “John’s military retirement pay at the time it came to Sandra was subject to later reduction (should John exercise a waiver to receive disability benefits to which he is entitled). The state court did not extinguish (and most likely would not have had the legal power to extinguish) that future contingency.”
Similarly, what if John had agreed as part of the divorce proceedings not to take any actions to reduce his military retirement benefit? Under New Hampshire law, if he then voluntarily accepted the VA waiver, it would seem the decree could be subject to revision on the grounds of either mutual mistake or fraudulent inducement, since the reduction of the disposable retired pay was considered and clearly not intended.
The Supreme Court in Howell did confirm that courts determining the value of the parties’ assets are “free to take account of the contingency that some military retirement pay might be waived, or… take account of reductions in value when it calculates or recalculates the need for spousal support.” (citing Rose v. Rose (1987); and 10 USC Section 1408(e)(6)). The result is that courts may need to look at creative ways to maintain an equitable distribution of the parties’ property, or when looking at the need and ability to pay alimony, where a VA waiver might impact the retirement benefit received by each party.
Anna Goulet Zimmerman practices at the Law Office of Manning & Zimmerman in Manchester. She focuses her practice on personal injury/civil litigation and family law matters. Practicing for many years near Fort Hood, an Army base in central Texas, she worked on a variety of cases involving military matters.