Can a State increase the amount a divorced spouse receives each month from
a veteran’s retirement pay to indemnify a divorced spouse for the
loss caused by a veteran’s waiver to elect disability benefits?
Quite simply put, the Supreme Court of the United States says, “no”.
Why is this important? Because it impacts the amount of money a divorcing
spouse can be awarded from a military pension. Even more importantly,
for those that have been receiving a share of retirement pay as part of
a settlement agreement, it can reduce that amount and there’s nothing
they can do to remedy it.
Howell v. Howell
A federal statute allows state courts to treat disposable military retirement
pay as community property. For an Indiana divorce, that means disposable
military retirement pay is considered a divisible asset. Indiana law tells
us the presumption is that spouses will equally divide their assets (and
debts), but that presumption is rebuttable which means courts can, instead,
consider factors in favor of an equitable division of property. Generally
speaking, though, 50% of that military retirement pay is fair game for
a court to divvy up.
Howell v. Howell, Sandra Howell was awarded 50% of her husband’s, John, future military
retirement pay. Thirteen years later, John was found to be 20% disabled
due to a service-related shoulder injury. John elected to receive disability
to reap the tax-free benefits that disability pay has to offer. John did
nothing wrong in making that election, but it did require him to waive
roughly $250 per month that he was receiving from his $1,500 monthly retirement
pay. This waiver reduced Sandra’s monthly award by $125. Why?
In order to receive disability pay, John was required to give up an equivalent
amount of retirement pay. The federal government doesn’t want anyone
Uniformed Services Former Spouses’ Protection Act authorizes states to treat veterans’ “disposable retired pay”
as community property (in other words, subject to division in Indiana),
but the federal law expressly excludes amounts deducted from retirement
pay that happen when required by law when electing to receive disability
benefits. Let’s keep it short and sweet:
Disposable retired pay doesn’t include any waived amounts that happen
because a veteran receives disability benefits.
Sandra asked her state family court to enforce the original divorce decree
and restore the value of her share of John’s retirement pay that
she lost. She was essentially asking the court to reimburse her for the
lost amount due to John’s waiver. They agreed with Sandra, but the
Supreme Court reversed and said a state court doesn’t have the authority
to force reimbursement because that improperly preempts federal law.
What This Means for You
The key takeaway from this decision is that federal law prohibits states
from treating waived military retirement pay as divisible community property.
It doesn’t matter whether the waiver happens before or after a divorce—it
can’t be divided. The value of any disposable military retirement
pay is contingent upon a veteran’s right to elect to receive disability benefits.
Howell v. Howell case, Sandra only lost $125 per month based on John’s election.
But let’s not ignore the fact that John was found to be 20% disabled.
Had that number been higher, Sandra’s share could have been further
significantly reduced. This doesn’t mean all is lost. Courts are
able to take this future contingency into consideration when valuing marital
assets, but unfortunately for Sandra, the future contingency wasn’t
accounted for and she lost out on the potential to get income from another source.
If you’re in the military and going through a divorce or you’re
in the process of going through a divorce with a military spouse, it’s
imperative this contingency is taken into consideration when dividing
marital assets. The attorneys at Hollingsworth & Zivitz can help you
navigate through the process. Call us today at (317)569-2200.
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