How to Save Money When Dividing Your Military Retired Pay
- Your disposable retired pay, meaning your gross military retired pay minus any deductions for disability, is divisible under both federal and state law.
- Under Virginia law, your spouse can receive up to fifty percent of the “marital share” of your retired pay, the marital share being defined as the portion that was earned during the marriage before separation.
- The Defense Finance and Accounting Service (“DFAS”) can pay your spouse his or her portion of your military retired pay directly where your marriage overlapped with 10 years or more of your military service.
What we have not discussed in detail is how you can structure your military retired pay award to save you money during the course of your retirement. By carefully crafting the language of the separation agreement or divorce decree that divides your retired pay, you can do just that.
Division Of Retired Pay By Fixed Dollar Amount Or Percentage
We have already touched on the most basic ways of dividing your military retired pay. If you are already retired, it is best to structure the award in terms of a fixed dollar amount or percentage, as an appropriate award can be easily calculated by making reference to the standard retirement variables: the date of your marriage, the date of your separation, the dates of your service, and your rank and base pay at retirement. For example, your separation agreement or divorce decree might contain the following language:
- The former spouse is awarded ___ percent of the member’s disposable military retired pay; or
- The former spouse is awarded ___ dollars of the member’s disposable military retired pay.
Division of Retired Pay By Formula Award Or Hypothetical Award
In addition to accepting fixed dollar amount or percentage awards as set forth above, DFAS will accept and process orders that contain formula awards and hypothetical awards. These two forms are appropriate for servicemembers still on active-duty or for reservists who continue to accumulate reserve points, but who wish to award their spouses no more than a portion of the marital share.
Formula Awards. A formula award uses the standard formula to calculate the marital share, and is based on your actual retirement variables at the time of your retirement – even though they are not known at the time of your divorce! Essentially, a divorce decree or separation agreement containing a formula award specifies the number of months of your marriage before separation that overlapped with your military service or the number of reserve retirement points you earned during that time period. The other variables, such as the length of your service and your base pay at retirement, are unknown until you actually retire. Upon your retirement, DFAS will plug in those numbers, calculate the marital share and then begin making payments to your spouse. The following are examples of acceptable formula awards:
- [Active duty formula] The former spouse is awarded a percentage of the member’s disposable military retired pay, to be computed by multiplying 50% times a fraction, the numerator of which is x months of marriage before separation during the member’s creditable military service, divided by the member’s total number of months of creditable military service.
- [Reservist formula] The former spouse is awarded a percentage of the member’s disposable military retired pay, to be computed by multiplying 50% times a fraction, the numerator of which is x Reserve retirement points earned during the period of the marriage before separation, divided by the member’s total number of Reserve retirement points earned.
Please note than in these formula awards, x– the numerator of the marital share– must be stated in the separation agreement or divorce decree (otherwise your agreement/decree will not be enforceable by DFAS). However, that is usually done easily enough, by simply calculating the number of months of marriage during the marriage before the final separation (or in Reserve cases, the number of retirement points earned during the marriage before the final separation).
The beauty of a formula award is that you it ensures your spouse is receiving no more than the share to which he or she is legally entitled under Virginia law. Remember that spouses in Virginia are limited to receiving a portion of the marital share of your military retired pay, and the portion must be no more than fifty percent (50%).
Hypothetical Awards. A hypothetical award also uses the standard formula to calculate the marital share, but uses variables other than those actually used to calculate your retirement. For example, you can specify a different date of retirement or a different rank and base pay, so that your spouse cannot benefit from the years you worked and the promotions you earned after separation. All of the following are acceptable by DFAS:
- The former spouse is awarded _____% of the disposable military retired pay the member would have received had the member retired with a retired pay base of ________ and with _______ years of creditable service on ________.
- The former spouse is awarded _____% of the disposable military retired pay the member would have received had the member retired on his actual retirement date with the rank of ________ and with _______ years of creditable service.
- [Reservist] The former spouse is awarded _____% of the disposable military retired pay the member would have received had the member become eligible to receive military retired pay with a retired pay base of _______ and with _______ Reserve retirement points on _______.”
- [Reservist] The former spouse is awarded _____% of the disposable military retired pay the member would have received had the member become eligible to receive retired pay on the date the member attained age 60, with the rank of ________ , with _______ Reserve retirement points, and with _______ years of service for basic pay purposes.
In all these examples of hypothetical awards, all of the blanks would need to be filled in, in the language of your separation agreement or divorce decree, for the language to be enforceable by DFAS. Filling in those blanks is often much trickier than simply calculating the numerator of the marital share in a formula award. It typically requires the assistance of an experienced military divorce attorney– and can become the subject of intense debate in separation agreement negotiations.
Now, if you do the math, you may find that you save substantial sums, perhaps hundreds of thousands of dollars over a period of enough years, by limiting your spouse to what you would have earned had you retired on the date of separation, with your rank and base pay as of that date. Please note: DFAS can process a hypothetical award based on your date of separation even if your retirement had not yet vested on that date– so long as the language for the hypothetical award is properly stated in your separation agreement or divorce decree.
Securing representation by an experienced military divorce lawyer is essential if you are to ensure your military retired pay is divided in a manner that will provide you the safe, secure retirement you earned during your service. Livesay & Myers, P.C. has a team of experienced military divorce attorneys across offices in Manassas, Fredericksburg and Fairfax, Virginia. Contact us to schedule a consultation today.