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MILITARY RETIREMENT PAY
2001 National Legal Research Group, Inc.

VIRGINIA: Irlbacher v. Irlbacher, No. 2083-00-4 (Va. Ct. App. Aug. 7, 2001).

The wife contended that the trial court erred in ordering that the wife's retroactive share of the husband's military retirement pay be based on the husband's "net" retirement pay rather than the "taxable income" portion of his retirement pay.


In this case, the equitable distribution order, prepared by the husband, was entered by the trial court on July 27, 2000.

Before the appeals court, the wife contended that the trial court erred in ordering the husband to pay the wife, as her retroactive share of the husband's military retirement pay, an amount calculated using the husband's "net" military retirement pay (that is, the husband's gross military retirement pay less the total of Survivor Benefit Plan (SBP) costs, disability pay (VA waiver), withheld federal and state income tax, and payments for insurance and bonds) rather than, as recommended by the commissioner, the "taxable income" portion of the husband's military retirement pay (that is, the husband's gross military retirement pay less the total of SBP costs and VA waiver).

At the commissioner's hearing, the couple agreed that the wife's marital share of the husband's military retirement pay should be one-half of 89% (44.5%). They disagreed, however, about whether the SBP costs and VA waiver should be included in the marital portion of the retirement pay and whether the wife's share should be retroactive. The husband argued that the wife's share should not be retroactive and should be limited to 44.5% of the "taxable income" amount of the military retirement pay. The wife argued that her share should be retroactive to March 1999 and should be 44.5% of the husband's gross military retirement pay.

The commissioner recommended that the wife receive 44.5% of the husband's gross military retirement pay after the SBP costs and VA waiver were deducted, for a total of $1,545.46 per month: $3,771 (the husband's gross retirement pay) - $110.06 (SBP costs) - $188 (VA waiver) = $3,472.94 ("taxable income" portion of the husband's retirement pay); $3,472.94 x 44.5% (percentage of the wife's marital share) = $1,545.46 (the wife's monthly retroactive share). The commissioner recommended that this award be made retroactive to February 2000.

The husband filed exceptions to the commissioner's report. The husband requested that the wife's retroactive share of his military retirement pay be calculated using the "net" amount rather than the "taxable income" amount of his military retirement pay because he had already paid taxes on the retroactive share. After hearing argument on the husband's exceptions to the commissioner's report and the wife's objections to the husband's proposed decree, the trial court granted the husband's exception and entered the equitable distribution order prepared by the husband, overruling the wife's objections.

The equitable distribution order provided that the wife's retroactive share of the husband's military retirement pay be 44.5% of the "net" amount, for a six-month total of $7,524.22, or $1,254.04 per month. That reflects deductions from the marital portion of the husband's retirement pay of not only the income taxes withheld but also the husband's insurance and bond payments, as follows: $3,771 (husband's gross retirement pay) - $110.06 (SBP costs) - $188 (VA waiver) - $312.79 (federal income taxes withheld) - $150 (state income taxes withheld) - $192.09 (payments for insurance and bonds) = $2,818.06 (husband's "net" retirement pay); $2,818.06 x 44.5% (percentage of wife's marital share) = $1,254.04 (wife's monthly retroactive share).

The husband conceded that the commissioner never considered the issue of whether the withheld income tax and the payments for insurance and bonds should be excluded from the marital portion of his military retirement pay because the husband did not raise the issue before the commissioner. In addition, in explaining in his exception to the commissioner's report why the "net" amount of his military retirement pay should be used to calculate the wife's marital share of that pay, the husband stated only that he had "already paid taxes on the retirement pay."

Similarly, the husband made no mention to the trial court of the payments for insurance and bonds at the hearing on his exceptions to the commissioner's report. Instead, he simply presented to the court a proposed equitable distribution order that stated that the wife's retroactive marital share of his military retirement pay was $7,524.22, or 44.5% of the "net proceeds" from the pay. The order provided no details as to what deductions were included to arrive at the "net proceeds."

The trial court ruled that the wife's retroactive share of the retirement pay was to be calculated on the "net" amount of the retirement pay and entered the order prepared by the husband. The court apparently rejected the commissioner's recommendation and reduced the wife's retroactive share of the husband's military retirement pay without considering the couple's respective equities and rights in the taxes and payments for insurance and bonds deducted from the husband's gross pay.

The appeals court concluded that the evidence failed to support the decision of the trial court to credit the husband with the additional retroactive amounts of his withheld federal and state taxes and deducted payments for insurance and bonds. The appeals court held that the trial court abused its discretion by improperly substituting its judgment for the commissioner's.

The wife also contended that the trial court erred in entering the equitable distribution order because the formula used to compute the wife's prospective marital share of the husband's military retirement pay and, upon the death of the husband, the wife's share of the SBP benefits was incorrect and not in accord with the commissioner's recommendations. The husband argued that there was no variance between the commissioner's recommendations and the formula in the order.

The equitable distribution order as entered by the trial court provided:

It appearing to the Court that the Commissioner in Chancery took into consideration all proper evidence pertaining to the equitable distribution of the parties' marital properties and debts, and pursuant to all factors contained in Virginia Code Section 20-107.3, it is ADJUDGED and DECREED that the recommendations and findings set forth in the Report of the Commissioner in Chancery dated May 23, 2000, are incorporated into these specific findings described below.

To facilitate the parties' use of this Decree and as and for information to third parties who may be affected thereby, certain of the Court's awards may be hereinafter set out, but in no event shall this Decree be deemed to be inconsistent with the recommendations of the Commissioner in Chancery as set forth in his Report dated May 23, 2000, except insofar as this document has specific changes reflecting the Judge's granting of exceptions to the Commissioner's Report, such exceptions filed by [the husband].

With regard to the quote, the appeals court stated that the trial court "failed, along with the husband, to grasp the significance of the wife's argument on the issue and ruled simply at the hearing on the wife's objections to the husband's proposed order that the `language on page six, paragraph six, is proper.'"

The appeals court noted that the commissioner found that 89% of the husband's military retirement pay was marital property, of which the wife was entitled to half. Thus, the wife's share of the husband's retirement pay was 44.5%. The commissioner further found that the wife's prospective share of the husband's military retirement pay is 44.5% of his gross retirement pay after the SBP cost and the disability pay are deducted. "Currently," the commissioner went on to say, "this yields $1,545.46 per month for her. . . ." This result is calculated as follows: $3,771.00 (husband's gross retirement pay) - $110.06 (SBP costs) - $188.00 (VA waiver) = $3,472.94; $3,472.94 x 44.5% (percentage of wife's marital share) = $1,545.46 (wife's monthly prospective share). Conversely, the formula set forth in the order, calculated, as indicated, in a straight sequence, results in an amount of $16.39 less, as follows: 89% x $3,771.00 (husband's gross retirement pay) = $3,356.19; $3,356.19 - $110.06 (SBP costs) - $188.00 (VA waiver) = $3,058.13; $3,058.13 x 50% = $1,529.07.

The appeals court noted that the formula in the equitable distribution order was flawed because it failed to direct the person performing the calculation to first subtract the SBP costs and VA waiver from the gross retirement pay (or SBP benefits) before multiplying that amount by 44.5% (or, as set out in the formula in the order, multiplying that amount first by 89% and then by 50%).

The appeals court held, therefore, that the formula in the equitable distribution order did not properly reflect the wife's prospective marital share of the husband's military retirement pay and the SBP benefits. The appeals court stated that the trial court was plainly wrong in entering the order.

The wife also contended that the equitable distribution order, which provided for the transfer of the couple's North Carolina home to the husband but made him responsible only for the "tax consequences associated with such transfer," was not in accord with the commissioner's recommendation.

The commissioner had found that the property's tax basis was low and that therefore there was the probability for a large income tax liability upon its sale. The husband, the commissioner found, wanted the home "and responsibility for . . . the difficult tax consequence." The wife, on the other hand, would neither be able to avoid or handle the tax consequences in a timely fashion. The husband also had the responsibility for the significant mortgage debt on the property. In light of these findings, the commissioner recommended that the home be transferred to the husband along with its tax consequences.

The appeals court concluded from this that the commissioner had recommended that the husband bear all the tax consequences related to the North Carolina property. The appeals court noted that the order of the trial court, read literally, however, only assigned to the husband those tax consequences associated with the transfer of the property from the wife to the husband. Thus, the appeals court held that the trial court's equitable distribution order was improperly inconsistent with the commissioner's recommendation and that the trial court erred in entering the order as drafted.

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