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Major Changes to Federal Law on Dividing Military Retired Pay

CongressThe National Defense Authorization Act (NDAA) for 2017, signed into law in December 2016, drastically changes the way military retired pay can be divided in divorce cases. The new NDAA made major changes to the Uniformed Services Former Spouse Protection Act (USFSPA), which is the federal law enacted in 1982 that allowed states to divide military retired pay as marital property in divorce.

The original USFSPA did not provide for any particular division of a servicemember’s military retired pay. Rather, each state was able to develop methods of dividing military retired pay based on their existing state laws concerning division of property in divorce.

Virginia, as an equitable distribution state, awarded a former spouse a portion of the “marital share” of the servicemember’s retired pay. The marital share was a fraction of the total retired pay, with the numerator being the creditable service performed from the date of marriage to the date of separation, and the denominator being the total creditable service performed by the servicemember. This method—often called the “time rule,” as it focuses on time worked during the marriage—was also the approach used by a majority of states.

The amendments to the USFSPA in the new NDAA, however, preempt state laws by mandating the method state courts must use in dividing military retired pay. The method required by the new USFSPA is the so-called “frozen benefit” approach. It requires that retired pay be established (or “frozen”) based on the member’s rank and years of service at the time the court order dividing military retired pay (typically the final divorce decree) is entered. This is accomplished by creating a “hypothetical” retirement division as if the servicemember retired at the time of the order, even if he or she was not yet eligible to retire on that date.

The frozen benefit approach proceeds from the position that all career gains that occur after divorce (including promotions and other benefits related to length of service) should belong solely to the servicemember. By contrast, the time rule is based on the argument that the foundation for those career gains was created during the marriage, and the former spouse should therefore share in some (not all) of those gains.

It is worth noting that the amendments to the USFSPA address military retirement benefits only. All other government pension plans, such as the Federal Employees Retirement System (FERS) plan for federal civilian employees, remain divisible by states as they see fit. Virginia law applies the time rule approach to pension division in divorce cases—so for now at least only military retired pay is subject to the frozen benefit approach in Virginia. Military retired pay has essentially been made a special, separate class of benefit subject to its own set of laws.

One important thing to note is that the division of retired pay will not change for servicemembers that have retired prior to their separation and divorce. By retiring, the servicemember has effectively “frozen” their retirement benefits by beginning to receive them. In other words, no hypothetical division of retirement benefits is needed when benefits are actually being received.

As the new law has been in effect for only two months, the full extent of its impact is still unknown. Will Virginia modify all laws governing pensions so that they are all treated in the same manner as military retirement benefits? As an equitable distribution state, will Virginia award the former spouse of a servicemember a greater portion of the non-retirement property to compensate for the diminution in the former spouse’s share of retired pay? Until these questions are answered by the General Assembly, it will be up to Virginia courts to interpret the law as it currently stands.

It could take years before new state laws and procedures are established to answer the many questions raised by the new federal law on military retired pay division. Now more than ever, servicemembers and spouses should seek counsel from attorneys with specific experience in military divorce cases. The family law attorneys at Livesay & Myers, P.C. have years of experience with the division of military retired pay and benefits in Virginia divorce. Contact us to schedule a consultation today.