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Changes to Divided Military Retirement Pay Calculations

The 2017 National Defense Authorization Act (NDAA), while not yet signed into law, contains a change that will affect divided military retirement pay calculations.  It's an important change and one that divorcing parties, their lawyers, and judges need to understand.

Under the Uniformed Services Former Spouses Protection Act (USFSPA), courts are permitted to divide military retirement pay as a marital asset.   This is just like the way that they can divide other assets such as bank accounts, houses, cars, and other retirement accounts.  It is purposefully non-specific about amounts, allowing each case to be determined based upon the specific details of the situation.

The ideal way to work out a settlement agreement is for the two parties to come to an agreement, often with the help of a mediator or their lawyers.  If they can not come to a compromise, the case is  presented to the court for a decision.  Unfortunately, the divorcing couple, the lawyers, and the judge(s) often do not understand all the things that are involved.  Because of the confusion, property settlements frequently don't do what the parties expected.

Common issues that aren't properly considered include:

  • the impact of disability payments on military retirement pay,
  • the payment or non-payment of Survivor Benefit Plan (SBP) premiums, and
  • the accrual of additional retirement pay after the date of the divorce.
It is this last issue that is being addressed in the new law.  The 2017 NDAA includes language specifying that the amount of retirement pay to be divided will be calculated by using:

“(i) the amount of basic pay payable to the member for the member's pay grade and years of service at the time of the court order, as increased by

“(ii) each cost-of-living adjustment that occurs under section 1401a(b) of this title between the time of the court order and the time of the member's retirement using the adjustment provisions under that section applicable to the member upon retirement.”

Under the old rules, unless the order is written in a specific way, any ordered division of retirement pay is calculated based upon the actual retirement pay earned.  This can be disadvantageous to the service member.

Here's an example:  Sam Sailor has been in the Navy for 15 years and is an E-5.  He has been married to Susie Sailor for five years, and they are divorcing.  They agree that Susie be awarded 1/4 of Sam's retirement pay, thinking that their five year marriage will be 1/4 of Sam's military career.    Sam continues to serve for another five years and promotes to E-6.  Sam's retirement will be based on an E-6 with 20 years of service.  Susie will receive 1/4 of that higher retirement pay.  Susie is benefiting from his additional five years of service and the extra rank earned during that time.  Under the new law, Susie's portion will be calculated using Sam's rank and time-in-service on the date of the divorce.  Susie will no longer benefit from the additional time-in-service and rank attained after the divorce.

With this change, there will be a standard basis for divided military retirement pay calculations.  In theory, one variable will be eliminated.  In reality, it may or may not have any impact on the net results of cases.  That will still depend on the knowledge of the divorcing couples, their lawyers, and the judges overseeing their cases.

Just to be clear, this change will not impact the ability of the state courts to award any amount of retirement pay.  Couples still have the discretion to write a division that accomplishes their goals.

This change will only affect court orders dated after the effective date of this law and will have no impact on existing orders.

As with the previous rules, the overall success of a division of marital property will still depend on the willingness of the two parties to compromise, and the knowledge of the couple, their lawyers, and the judge.  Thoughtful consideration and careful wording can eliminate unintended consequences in the future.

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