On December 23, 2016, President Obama signed S. 2943, the 2017 the National Defense Authorization Act, which had previously passed both chambers of Congress with “veto-proof” majorities in both chambers.
Section 641 of the Act contains a major change in how states are permitted to divide military retirement. In short, the former spouse’s share of the retirement is “frozen” as of the date of dissolution, and cannot include any future promotions or longevity increases.
The term "disposable retired pay", for purposes of division of retirement, is modified by a new 10 U.S. Code §1408(a)(4)(B), which reads: "For purposes of subparagraph (A), the total monthly retired pay to which a member is entitled shall be (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."
EXAMPLE - 20 Years Service at Dissolution
Let’s assume that at the time of dissolution, a couple was married for exactly 20 years, and the servicemember was a Major (O-4) with 20 years of marriage overlapping the service. That same Major then went on to serve 10 more years after dissolution, retiring as a Colonel with 30 years of service.
Under the coverture (“time rule”) formula currently used by Colorado, and most other states, the marital share of the retirement would be 20 / 30, or 66.67%, and the former spouse’s share would be 33.33% of whatever the servicemember actually received at retirement.
A Colonel with 30 years of service has a base pay in 2017 of $11,328/mo, and (simplistically) would receive approximately 75% of that in retirement, or $8496/mo. Prior to this Act, the former spouse’s share would be 33.33% of that, or $2831/mo.
However, under the new definition, the marital share would be based upon 20 years of marriage divided by 20 years of service, or 100% x the retired pay of an O-4 at 20 years, and the former spouse’s share would be half of that, or 50%.
A Major with 20 years of service has a base pay in 2017 of $7685/mo, and would receive a 50% of that in retirement, or $3843/mo.
The former spouse’s share would be half of that, or $1922/mo. That spouse, by losing the benefit of post-divorce promotions and longevity increases, has lost $909/mo. And the greater the promotion after the divorce, the more the disparity.
EXAMPLE - 5 Yrs Service at Dissolution
This new language would have the greatest impact on spouses who divorce early-on in the servicemember’s career. For example, let’s assume that at divorce, the couple had 5 years of marriage, and the servicemember was a SGT (E-5) with 5 years of service.
While an E-5 can obviously not retire with just 5 years of service, we would need to calculate the hypothetical retirement of that servicemember. An E-5 with 5 years of service has a base pay of $2669/mo in 2017. Retirement benefits accrue at the rate of 2.5% per year, so the retirement would be 12.5% x $2669, or $334/mo. The spouse’s share would be 1/2 of that, or $167/mo, once the servicemember retires.
By contrast, let’s look at what happens to the retirement under the pre-2017 retirement division if the E-5 ended up retiring as a Sergeant Major (E-9) with 28 years of service, and a base pay of $6776 at retirement. The servicemember’s retirement would be 70% x $6776, or $4743/mo.
The marital share would be 5 / 28, or 17.86%, and the former spouse’s share 1/2 of that, or 8.93%, which comes to $423/mo.
The former spouse under the new system would only get 40% of the retirement of a former spouse under the pre-2017 system!
Other Retirement Plans
The federal government administers several “defined benefit” retirement plans (where there is a fixed amount paid monthly based upon salary and years of service), including FERS and CSRS. This change only affects military retirement, so a spouse married to a DOD civilian would still receive the benefits of post-divorce promotions.
The change also does not affect state defined benefit plans (such as PERA in Colorado), nor any defined benefit plan administered by a private company. In those situations, as with the civilian federal plans, the spouse still receives the benefit of post-divorce enhancements to income.
By treating military retirements differently from other defined benefit plans, a significant problem could arise if the servicemember’s share of the spouse’s own retirement plan includes post-divorce promotions, whereas the spouse’s share of the military retirement excludes them. So, for example, if in the example above that Major were married to a DOD civilian with 20 years of service who was a GS-8 at the time of divorce, but a GS-12 at the time of her actual retirement, the servicemember receives a share of her GS-12 pension, but the spouse only receives a share of the pension of a Major, not a Colonel.
As the Act is brand-new, it is too early to tell how courts will respond to this. Clearly they will not be able to factor in post-divorce enhancements to military retirement, so could this lead to wholesale changes at the state level in how defined benefit pensions are treated, so as to treat all of them the same? Could the states give the former spouse an offset of other property to make up for the loss? Alternatively, the “lost” retirement could be treated as lost, much like VA disability, which is a benefit received by the servicemember but not a divisible property asset.
Date of Applicability
Per section 642(b) of the Act, it applies to all cases where the decree of dissolution, legal separation, or annulment is issued after its enactment, which as indicated was on December 23, 2016. This means it will affect all pending cases which have not yet been finalized!
DFAS Notice of Statutory Change web page, with information and a link to suggested language.
Military Pension Division and the Radical Rewrite, an American Bar Association paper, which explains and critiques the change, and raises some interesting concerns.