VA Waiver, Concurrent Receipt (CRDP) and Divorce Issues

What is a VA Waiver?

While a disabled veteran may be entitled to receive VA disability payments, if the member was also retired, a “VA waiver” has long prohibited double dipping – i.e. the concurrent receipt of both VA disability and military retirement payments.

This meant that a retiree who applied for disability payments from the Veterans Administration had to give up (“waive”) military retirement, dollar for dollar, in order to receive VA disability benefits.

Here is an excerpt from a Retiree Account Statement showing a VA waiver:

Excerpt from Retiree Account Statement showing VA Waiver

Restoring Retirement Lost to Waiver Through Concurrent Retirement & Disability Pay (CRDP)

As a result of a change in federal law (section 641 of P.L. 108-136, the 2004 National Defense Authorization Act), the VA waiver has been phased out for a normal military retiree (i.e. a longevity retirement for a member with 20+ years of service) who has a disability rating of 50% or higher. 10 U.S. Code § 1414(a)(1). This program is also known as Concurrent Retirement & Disability Pay, or CRDP, and often referred to as “concurrent receipt.”

When first introduced, a member would waive retirement on the retiree account statement, and then receive a separate CRDP payment. However, that has ceased, and CRDP payments are now just included in the regular military retirement. A Retiree Account Statement will still reflect a CRDP amount, but this is simply a behind-the-scenes accounting mechanism, and not a separate payment.

The CRDP amount is equal to the amount of the VA waiver, and not the member’s disability benefit. So if a member’s military retirement is $2500/mo, but that member is receiving $3000/mo in VA disability, his waiver (and therefore his CRDP payment) would be the full $2500 retirement, not the higher $3000/mo disability payment.

Just as military retirement is taxable, so too is CRDP. DoDFMR, Vol. 7B, Chapter 64, § 640503.

Here is an excerpt from a Retiree Account Statement reflecting a CRDP amount in the “Messages” section at the bottom:

Retiree Account Statement Showing CRDP Amount.

A retiree who is also qualified for Combat-Related Special Compensation (CRSC) cannot receive both CRSC and CRDP payments to restore the VA waiver of retirement; she must select between them. For more information, see our CRSC article.

When VA Waiver Applies

The VA waiver remains in effect in three situations:

• Retirees who have a non-combat related disability rating of 40% or below. 38 U.S. Code § 5304, and 38 U.S. Code § 5305.
• A member who is medically retired with fewer than 20 years of military service (i.e. TDRL temporary disability payments, or PDRL Chapter 61 disability retirement). 10 U.S. Code § 1414(b)(2)
• A member who is medically retired with more than 20 years of service may have a partial VA waiver imposed to the extent that the percentage of disability formula results in a higher retirement payment than a normal (20-year) military retirement. 10 U.S. Code 1414(b)(1).

Note that section Sec. 4403 of P.L. 102-484, the 2003 National Defense Authorization Act, created a TERA, or Temporary Early Retirement Authority, which authorized some members to retire with 15 years of service instead of 20. Such members are also eligible for CRDP, and therefore have no VA waiver. However, these programs have now expired.

Division of VA Waiver Payments in a Divorce

Federal law prohibits states from dividing amounts which a retiree has waived from her military retirement in order to receive VA disability payments. Per 10 U.S. Code § 1408(a)(4)(A)(ii), the definition of “disposable retired pay:” which state courts may divide in a divorce excludes amounts which “are deducted from the retired pay of such member… as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38.”

Indemnifying the Former Spouse for VA Waiver

In a unanimous 2017 U.S. Supreme Court decision, Howell, the Court made clear that states not only cannot divide disability directly (which was already well-established), but cannot do it indirectly either by ordering dollar-for-dollar indemnity.

Prior to Howell, federal law had long prevented states from dividing VA disability payments. Mansell. Colorado has similarly ruled that family law judges cannot divide VA disability payments, nor require the service member to indemnify the ex-spouse for a VA waiver of military retirement which occurred prior to dissolution. Franz.

But until Howell, most states had interpreted the federal prohibition on dividing VA disability payment as still permitting courts to order the retiree to “indemnify” the former spouse for lost retirement when, after the divorce, the retirement was reduced due to a VA waiver. In other words, the prohibition on dividing VA disability previously only applied to disability waivers which were in effect already by the time of the decree.

The theory was that a spouse who was awarded a share of military retirement at divorce had a vested interest in the retirement, which the retiree could not unilaterally reduce by applying for VA disability. Colorado was part of this majority of states requiring indemnity for a post-decree conversion of retirement to disability, but not a pre-decree conversion. Warkocz.

Howell – Supreme Court Voids Indemnity for VA Waiver

In Howell, the former spouse was awarded a 50% share of the military retirement at divorce. When the military member retired a year later, he paid the former spouse her share. However, 13 years later, the retiree applied for VA disability and received a 20% rating, resulting in a waiver of $250/mo of retirement to receive the same amount in VA disability payments.

As the wife’s share of the retirement was 50%, the VA waiver resulted in her losing $125/mo from the military retirement. As was then common, the family law judge ordered the retiree to pay the former spouse $125/mo to indemnify her for the reduction in her share of the retirement.

The U.S. Supreme Court reversed, calling “semantic” the distinction between a pre-decree and post-decree conversion of retired pay to disability. Howell. 137 S.Ct. at 1406. SCOTUS was dismissive of the vesting rationale which states (including Colorado) had used to justify ordering indemnity:

“State courts cannot ‘vest’ that which (under governing federal law) they lack the authority to give.”

Howell, 137 S.Ct. at 1405.

And the issue of pre-decree vs. post-decree? A false distinction, per the Court:

“The temporal difference highlights only that John’s military retirement pay at the time it came to Sandra was subject to later reduction (should John exercise a waiver to receive disability benefits to which he is entitled). The state court did not extinguish (and most likely would not have had the legal power to extinguish) that future contingency. The existence of that contingency meant that the value of Sandra’s share of military retirement pay was possibly worth less—perhaps less than Sandra and others thought—at the time of the divorce.”

Howell, 137 S.Ct. at 1405.

The VA Waiver in a Divorce Today

SCOTUS did offer two potential means by which state courts could take VA disability into consideration, without ordering dollar-for-dollar indemnity:

Property Division In Lieu of VA Waiver Indemnity?

“A family court, when it first determines the value of a family’s assets, remains free to take account of the contingency that some military retirement pay might be waived.” Howell, 137 S.Ct. at 1406. So a court may award a spouse more of other assets to make up for the possibility that some retirement may be lost.

This is not helpful to the spouse if the military retirement is the single largest or only asset, however, nor does the judge have a crystal ball to speculate too much about what a possible future VA waiver may look like.

Alimony In Lieu of VA Waiver Indemnity

A state court could “take account of reductions in value when it calculates or recalculates the need for spousal support.” Howell, 137 S.Ct. at 1406. The viability of this option is limited, however, by the fact that states typically have statutory factors for maintenance, and if the spouse who loses some retirement does not otherwise qualify for maintenance, or has reached the end of the maintenance term, then maintenance is not a viable alternative to retirement.

Colorado – Cannot Indemnify for a VA Waiver, No Matter What it is Called

Colorado has one published decision following Howell from the Court of Appeals. Tozer. There, the trial court reserved jurisdiction over maintenance at dissolution in case the husband received a VA waiver. Which he later did. The Court of Appeals confirmed that Howell overruled Warkocz, the Colorado decision requiring indemnity, and that indemnity is truly dead in Colorado:

“The Howell takeaway is clear. Military retirement disability benefits may not be divided as marital property, and orders crafted under a state court’s equitable authority to account for the portion of retirement pay lost due to a veteran’s post-decree election of disability benefits are preempted.”

Tozer, ¶ 21.

The fact that SCOTUS impliedly invites states to consider a VA waiver when fashioning an equitable property settlement does not mean that states will actually do so. In an unpublished 2019 decision, the Colorado Court of Appeals upheld the trial court determination that it could not consider a spouse’s VA disability payments for purposes of a property settlement:

“Thus, courts may not shift marital property to avoid the requirements of the USFSPA or Mansell’s holding, nor may they financially compensate a former spouse for not receiving a share of the military spouse’s disability pay.”

Copeland, ¶ 13.

For a more in-depth discussion of Copeland, see our blog post Veterans Benefits for Divorced Spouses – Not Divisible.

Agreement Not Sufficient to Order Indemnity for VA Waiver

In a 2018 unpublished decision, the Colorado Court of Appeals considered whether the parties’ divorce separation agreement (pre-Howell) requirement that the member indemnify the spouse for a VA waiver was still binding after Howell.

In Longmire, years after divorce, the member received a Chapter 61 disability retirement, and VA disability payments in lieu of a regular military retirement, resulting in there being no military retirement left to divide. The trial court granted the former spouse’s request for indemnity, based upon the theory that the parties had a binding contract for indemnity which was still valid after Howell.

The Court of Appeals reversed, holding:

“State courts may not rely on contract theory to avoid federal preemption. True, in Howell the parties did not specifically contract for indemnification to ensure that the nonmilitary spouse would receive his or her share of retirement pay. But, as recognized in Mattson v. Mattson, 903 N.W.2d 233, 241 (Minn. Ct. App. 2017), ‘Howell effectively overruled cases relying on the sanctity of contract to escape federal preemption.’”

Longmire, ¶ 21.

Set Aside Pre-Howell Indemnity Clauses?

How about those pre-Howell cases where courts ordered indemnity for a VA waiver, or where the spouses agreed to one in a separation agreement? While today, such holdings contradict Howell, state rules of civil procedure may well bar a retiree from returning to court years later to “fix” an order to indemnify based solely upon a change in the law.

The Supreme Court in Mansell recognized that while its rulings would certainly apply prospectively, they did not obligate state courts to reopen older cases:

“Whether the doctrine of res judicata… should have barred the reopening of pre-McCarty settlements is a matter of state law over which we have no jurisdiction. The federal question is therefore properly before us.”

Mansell, at 586, n.5.

Res Judicata is a legal phrase meaning that the matter has already been decided. And this doctrine is a killer for claims when the law changes, as it often renders legal victories meaningless for the actual “victor.” While Mansell and Howell set precedents for the future, in Mansell the military retiree lost when the case was remanded to state court.

On remand to the California trial court, that court ruled that since California properly exercised its jurisdiction when entering the prior order, the issue was res judicata, and the U.S. Supreme Court’s ruling did not void prior judgments to the contrary. And under state law, a change in the law did not justify reopening the prior judgment against the retiree. In other words, even though the military retiree won a battle for future litigants, he could not reopen his own decree to take advantage of the favorable SCOTUS ruling. Mansell II.

However, in California the courts have interpreted the Uniformed Services Former Spouses Protection Act (and therefore the cases interpreting it) as limitations on a family law court’s authority to divide retirement, rather than depriving the court of jurisdiction. Normally, this is a distinction that matters little.

Colorado – Judgment in Violation of Howell Is Retroactively Void

Colorado long ago concluded that the USFSPA deprives state courts of subject matter jurisdiction to divide a military retirement, except consistent with the statute. In Akins, the court held that 10 U.S. Code § 1408(c)(4) deprives a trial court of subject matter jurisdiction to divide a military retirement absent one of those jurisdictional bases being satisfied. And, as the Akins court pointed out, lack of subject matter jurisdiction can be raised at any time.

And in an unpublished 2022 decision, the Colorado Court of Appeals has held that a pre-Howell judgment for indemnity was void, so the outstanding judgment amount was forgiven. In Fisher, the wife was awarded a 37% share of the military retirement back in the 1990s, and the agreement also had a clause whereby the husband would indemnify her for a VA waiver.

He failed to pay the indemnity as ordered, so the wife obtained a judgment for the arrears. Years later, the husband successfully had that judgment set aside, and since the court found the judgment was void, there was also no deadline on his filing the motion to set it aside. And on the issue of this effectively applying Howell retroactively?

“Even if Howell changed Colorado law, however, because it constitutes a controlling interpretation of federal law, it applies retroactively. See Harper v. Va. Dep’t of Tax’n, 509 U.S. 86, 97 (1993) (“When this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.”)”

Fisher, ¶ 21.

For a full discussion of the Fisher decision, and its potential impact, see our blog post VA Disability and Divorce: Indemnity Voided Retroactively.

FAQ – VA Waiver & Divorce

If you need a Colorado Springs attorney for your family law case, we would be honored if you would consider the veterans divorce lawyers at Graham.Law. Military divorce is not easy, but whether you are active duty, retired, a veteran receiving benefits, or a family member, our attorneys understand VA waiver and divorce issues, and we can help.