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UPDATE ON MILITARY BENEFITS
© 1995 National Legal Research Group, Inc.
Military retirement benefits continue to engender a great deal of litigation. The high volume of appellate cases has resulted in large part from the repeated changes in federal law regarding state courts' authority to distribute military pension benefits. The complexity of the Uniformed Services Former Spouses' Protection Act (USFSPA) and changes in state marital property law also contribute to the extent of the litigation on military pensions.
Quite a few recent cases have centered on military benefits other than retirement benefits. In particular, government efforts to reduce the size of the armed forces through voluntary separation programs have led to disputes between former spouses in several reported cases. Recent cases have also involved survivor benefits, disability pay, and retainer pay.
Part I of this article discusses recent cases on reopening final decrees to distribute military retirement benefits. Part II reviews recent decisions on other issues relating to military pensions, and Part III highlights cases on military benefits other than military retirement pay.
I. Retirement Benefits - Reopening Final Decrees
In McCarty v. McCarty , 453 U.S. 210 (1981), the nation's high court decided that the federal supremacy clause precluded state courts from dividing military pensions in dissolution actions, but Congress changed the law by enacting USFSPA, 10 U.S.C. Sec. 1408. Effective February 1, 1983, USFSPA restored to state courts a circumscribed authority to treat military pensions as marital or community property.
Pre-McCarty Decrees. After USFSPA was enacted, some individuals who were divorced before McCarty without any division of their spouses' military pension benefits decided to try to obtain a share of the benefits, by way of a motion to reopen or a suit for partition. Although most courts rejected such attempts, some courts took a different view and allowed the nonmilitary spouse to recover a portion of the military retirement benefits.
Congress spoke on this issue in late 1990, when it amended USFSPA to bar state courts from dividing military pensions of former spouses whose divorce decrees predated the McCarty decision (June 26, 1981) and did not distribute military retirement benefits or reserve jurisdiction to do so. Pub. L. No. 101-510, Sec. 555, enacted Nov. 5, 1990 (amending 10 U.S.C. Sec. 1408(c)(1)). The congressional conference report on the amendment said that this provision was intended to implement the intent of Congress, expressed in the Act's legislative history, that USFSPA have prospective effect only. H.R. Conf. Rep. No. 101-923, 101st Cong., 2d Sess. 609 (1990).
The 1990 amendment did not end litigation on the issue, however. For example, in a South Carolina case, Terry v. Lee , ___ S.C. ___, 445 S.E.2d 435 (1994), a woman filed a partition action in 1992 to divide her former husband's military retirement benefits. The parties were divorced in 1968, and their property settlement agreement provided that they would divide equally any property not set forth in the agreement. The wife claimed that the agreement specifically reserved her rights in accordance with the 1990 USFSPA amendment.
The South Carolina Supreme Court held, however, that federal law barred the wife's partition action. Since the divorce predated McCarty , the wife was outside the class of people entitled to relief under the statute, even if the agreement reserved the wife's rights in the pension, the court said. Moreover, the agreement supported the husband's argument that the disputed clause in the agreement was drafted to address fraud or other property schemes, and not to permit subsequent division of military retirement pay. States remain preempted from distributing military retirement benefits except as positively permitted by USFSPA, the court emphasized, citing Mansell v. Mansell , 490 U.S. 581 (1989). Laches also barred the wife's claim, the court held, finding that the delay from the date of divorce to the filing of the wife's claim was unreasonable and would work extreme prejudice on the husband.
Another recent case where the 1990 amendment was held to preclude distribution of military retirement benefits was Knox v. Born , 879 S.W.2d 600 (Mo. Ct. App. 1994). The parties' 1980 dissolution decree failed to address the distribution of the husband's military retirement benefits, and in 1988, the wife filed a petition claiming a share of the benefits as undistributed marital property. In early 1990, the trial court entered an order finding that the wife was entitled to a share of the monthly benefits and retaining jurisdiction to hear additional evidence about their valuation and distribution. The Missouri Court of Appeals held that the 1990 amendment barred distribution of the benefits because the judgment distributing the benefits had not become final by the time of the 1990 amendment. If a final judgment dividing the retirement benefits had been entered prior to the effective date of the 1990 amendment, then the wife would not have been barred, as a matter of law, from recovery, the court commented.
In recent cases from Texas and Louisiana, former spouses have managed to avoid the bar of the 1990 amendment. In Meche v. Meche , 635 So. 2d 614 (La. Ct. App. 1994), the parties were legally separated by a judgment six weeks before the McCarty decision. Later that year - after the McCarty decision - they entered into a property settlement agreement and were divorced. The property settlement agreement did not include the husband's military retirement benefits. After he retired in 1992, the wife sought partition.
The Louisiana Court of Appeals held that the military retirement benefits were community property and could be partitioned, despite the 1990 amendment. Since the pre- McCarty separation judgment did not include a property settlement of any kind, the military retirement benefits did not come within the bar of the 1990 amendment, the court decided. The amendment was intended to prevent the relitigation of community property issues concerning military retirement benefits that were resolved prior to the McCarty ruling, the court noted. Where a pre- McCarty final decree divided the property of former spouses and did not either find that military retirement benefits were community property or reserve jurisdiction to treat such benefits as community property, the decree cannot be disturbed by retrospective application of USFSPA, the court said. In this case, however, the pre- McCarty decree did not divide property or include a property settlement, so partition of the military retirement benefits was not barred.
In Trahan v. Trahan , 894 S.W.2d 113 (Tex. Ct. App. 1995), a Texas appeals court held that the 1990 amendment did not preempt the state's law of res judicata, and hence the wife's right to a portion of military retirement benefits under a 1983 judgment survived the 1990 amendment. Before McCarty , a court partitioned the husband's right to retired pay as community property. While the case was pending on appeal, McCarty was decided, and subsequently the Texas Supreme Court rendered judgment for the husband. After the enactment of USFSPA, the wife again filed suit to partition the husband's military pension benefits, and she won a judgment partitioning the benefits in 1983. After enactment of the 1990 amendment, the former husband sued the wife for a declaratory judgment that the 1983 final judgment, partitioning his right to military retired pay, had become invalid and unenforceable.
The Texas Court of Appeals found it abundantly clear that Congress intended for the 1990 amendment to apply to final judgments. The effective date provision provides that the amendment "shall apply . . . to judgments issued before, on, or after the date of the enactment of this Act," the court noted. Id. at 115 (quoting Pub. L. No. 101-510, Sec. 555(e), 104 Stat. 1569, 1570 (1990), amended by Pub. L. No. 102-190, Sec. 1062(a)(1), 105 Stat. 1475 (1991)). The Code of Federal Regulations reinforces the proposition that the amendment was intended to affect valid court judgments, the court added. 894 S.W.2d at 117 (citing 32 C.F.R. Sec. 63.6(c)(7) (1993) ("For court orders issued before June 26, 1981, subsequent amendments after that date to provide for a division of retired pay are unenforceable " (court's emphasis))).
Next, the court took up the question whether the 1990 amendment preempted the Texas doctrine of res judicata and decided that it did not. "Whether federal law preempts state community property laws is quite a different question from whether the USFSPA preempts the common-law doctrine of res judicata," the court noted. Trahan v. Trahan, supra , 894 S.W.2d at 117. The 1983 judgment awarded the wife a portion of the husband's right to retired pay, and with the 1984 appellate affirmance of that judgment, the wife's right vested. Hence, res judicata barred a court from reopening the issue of whether she possessed such a right, and any subsequent amendment of USFSPA did not destroy that right. Hence, the 1983 judgment remained a valid and enforceable judgment, the court concluded.
The twists and turns in the federal law on military retirement benefits were exemplified by the events in In re Marriage of Olsen , 24 Cal. App. 4th 1702, 30 Cal. Rptr. 2d 306 (1994). The parties' pre- McCarty divorce was silent regarding the husband's military retirement benefits. In 1988, the wife filed an action to partition the benefits, and in 1989 the trial court decided that in order to receive her share of the benefits, the wife had to waive further spousal support, which she did. After the 1990 amendment abrogated the wife's right to share in the pension, she went back to court and requested equitable relief. The trial court ordered spousal support, and the California Court of Appeal affirmed. When the trial court in 1989 asked the wife to waive spousal support, both the trial court and the wife "had labored under the mistake of fact that she would be able to collect her monthly share of the pension until her death and the mistake of law that Congress would allow her to do so." 30 Cal. Rptr. 2d at 309. These exceptional circumstances required that the doctrine of res judicata not be applied. "The trial court has inherent power to do justice when an unforeseen change in the law destroys the effect of a prior order," the court declared. Id. at 307.
Decrees That Became Final Between McCarty and USFSPA. In light of USFSPA's removal of federal preemption, may decrees which denied benefits and which were finalized after McCarty and before USFSPA be reopened? Since USFSPA did not require reconsideration of a decree that denied benefits because of McCarty , the decision about reopening is a matter of state law.
In Sherrill v. Sherrill , 639 So. 2d 794 (La. Ct. App. 1994), a Louisiana appeals court held that in a partition action 10 years after the parties' 1982 divorce, retroactive application of USFSPA would not be unfair and would not violate the husband's constitutional rights, and the trial court should have treated military retirement pay as community property and awarded the wife her share of the pay.
Where a former spouse's military pension was not divisible under state law at the time of his or her divorce decree, modification has generally not been allowed. See Clifton v. Clifton , 801 P.2d 693 (Okla. 1990). Other reasons given by courts for refusing to reopen post- McCarty , pre-USFSPA decrees include no mechanism for reopening, e.g., Tomblinson v. Tomblinson , 183 Mich. App. 589, 455 N.W.2d 346 (1990); delay in seeking relief, e.g., In re Marriage of Vanek , 247 Ill. App. 3d 377, 617 N.E.2d 329 (1993); release of rights, e.g., Himes v. Himes , 12 Va. App. 466, 407 S.E.2d 694 (1991); and no reliance on McCarty , e.g., Crete v. Crete , 29 Mass. App. Ct. 531, 562 N.E.2d 856 (1990).
Post-USFSPA Final Decrees. In some cases, spouses who were divorced after USFSPA have gone to court to obtain a share of military retirement benefits which were not distributed in their dissolution or divorce. In such cases, the issue of applying USFSPA retroactively does not come into play, and the right to reopen or partition turns entirely on state law.
One such case was Hart v. Hart , 878 P.2d 1063 (Okla. 1994). The parties' 1986 property settlement and divorce decree did not distribute the parties' marital assets. In 1989, the wife filed a motion to vacate, claiming that the husband had failed to disclose the existence of his military retirement benefits. The trial court vacated the divorce decree and ordered that the military pension be included in the marital estate.
The state's high court held that the divorce decree could not be modified to divide military retirement benefits based on the husband's nondisclosure, where the benefits were not divisible under state law when the divorce decree was entered. Military pensions first became divisible in Oklahoma in 1987, nearly a year after the parties' divorce. "Therefore, the husband's failure to reveal the existence of the military retirement benefits to his wife was immaterial - the wife was not entitled to a portion of the military benefits on the date of the divorce. She may not request them now." Id. at 1066.
In the case of a decree distributing a military pension, a spouse who is dissatisfied must seek relief by way of appeal rather than by requesting modification after the judgment becomes final. The principles that govern modification of final judgments apply with equal force to cases involving military retirement benefits. Pearcy v. Pearcy , 884 S.W.2d 512 (Tex. Ct. App. 1994) (trial court lacked power to amend final judgment which awarded wife a percentage of husband's military pension; she should have appealed).
Partition or Distribution of Undistributed Pensions. Community property states have allowed former spouses to maintain partition actions to deal with military pensions that were unadjudicated in previous dissolution decrees. E.g., Sherrill v. Sherrill, supra. The principles underlying these community property partition cases do not apply in equitable distribution jurisdictions, however.
The difference between community property and equitable distribution for the purpose of partitioning undistributed military retirement benefits was discussed in depth in Nichols v. Nichols , 526 N.W.2d 346 (Iowa Ct. App. 1994). The parties' 1981 dissolution decree in Connecticut did not mention the husband's military retirement benefits. In 1991, the wife filed an action to partition the pension, claiming that it was a marital asset under Iowa law. The Iowa Court of Appeals agreed with the proposition that military pensions are marital assets subject to equitable distribution in a dissolution action but held that the wife had no ownership interest in the husband's pension that would allow her to seek partition in proceedings after marriage dissolution.
Iowa is not a community property state, where a spouse is entitled to share in property at the time it is acquired, the court observed. Rather, Iowa is a state where a spouse in his or her own right owns property separate from the other spouse. Although the Iowa Code directs courts in dissolution actions to make an equitable division of spouses' property, the designation of property as a marital asset does not automatically give the nonowner spouse an ownership interest in that asset, the court said. That ownership interest only arises when the court adjudicates the property division. Until then, property belongs to the owner spouse. Hence, the fact that military pensions are marital assets does not mean that the nonmilitary spouse has an ownership interest in the pension, but only that the pension may be distributed in dissolution actions. Here, the pension belonged solely to the husband, and ownership of the pension remained with the husband because it was not divided by the Connecticut dissolution decree. Since an ownership interest was required for partition, and the wife had no such interest, she could not maintain a partition action, the court concluded.
Another case where a spouse was denied postjudgment relief regarding an undistributed military pension was Salenius v. Salenius , 654 A.2d 426 (Me. 1995). Four years after the parties' 1988 divorce - which was silent regarding the husband's military pension - the wife sought relief from the judgment to obtain a share of the pension. Maine's high court held that the wife's motion, which was based on mistake or inadvertence, was not timely because it was not filed within one year of the judgment as required by the Maine procedural rule on reopening judgments. The court also decided that a 1989 state statute that permits division of property omitted from a divorce decree applied prospectively, not retroactively, and thus did not avail the wife. Maine is an equitable distribution state and not a community property state, and the 1989 statute on omitted assets represented a dramatic departure from prior law, the court commented. Hence, the wife was not entitled to relief.
II. Retirement Benefits - Other Issues
Jurisdiction. To treat a military pension as marital or community property under USFSPA, a court must have jurisdiction over the service member by reason of his residence (other than because of military assignment), his domicile, or his consent. 10 U.S.C. Sec. 1408(c)(4). A Texas appeals court held that notwithstanding this statutory provision, a trial court in a divorce action had jurisdiction to divide a husband's military retirement benefits where the husband filed a general answer and did not contest jurisdiction until appeal. Morris v. Morris , 894 S.W.2d 859 (Tex. Ct. App. 1995). Under the Texas Rules of Civil Procedure , a service member who wishes to challenge jurisdiction must file a special appearance to avoid consenting to the court's jurisdiction, the court said. See also Kildea v. Kildea , 143 Wis. 2d 108, 420 N.W.2d 391 (Ct. App. 1988) (husband's general appearance and failure to timely object to personal jurisdiction gave the trial court the authority to divide his military pension; his specific consent to division of pension was not necessary).
Choice of Law. In an action to divide military retirement benefits, the substantive law which must be applied is the law of the state where the action is brought, the South Carolina Supreme Court held in Terry v. Lee, supra . The husband and wife were divorced in California in 1968. Subsequently, the husband retired and moved to South Carolina. In 1992, the wife filed an action in South Carolina for partition of the husband's military retirement benefits. She argued that California substantive law should be applied to determine the parties' rights in the pension, but the trial court held that South Carolina law applied.
The state's high court agreed with the trial court that South Carolina substantive law applied. The USFSPA empowers the states to divide federal military retirement and offers guidance on how the division is to be accomplished, the court noted. The jurisdictional provision permits courts to address military retirement if they have jurisdiction by reason of the service member's residence, domicile, or consent, and Sec. 1408(c)(1) requires state courts to deal with military retirement benefits "in accordance with the law of the jurisdiction of such court." When those statements are read together, the substantive law which must be applied is the law of the state where the action is brought, the court concluded.
Short Marriages. One part of USFSPA states that military retirement payments may not be made "under this section" to a former spouse who was not married to the service member for at least 10 years. 10 U.S.C. Sec. 1408(d)(2). Courts in recent cases have followed the view of numerous earlier decisions holding that the 10-year requirement applies only to military retirement pay paid directly by the military finance center to the former spouse. A Virginia appeals court held that while a 10-year marriage is a condition for direct payment, failure to meet the 10-year requirement does not bar the court's division of a spouse's military retirement pay. Cook v. Cook , 18 Va. App. 726, 446 S.E.2d 894 (1994) (not error for trial court to declare husband's military pension to be marital property and award wife 17% of it upon his receipt of pension payments, notwithstanding that husband and wife were married for less than 10 years).
Similarly, the Louisiana Supreme Court held that the 10-year requirement applies only to direct payments. Warner v. Warner , 651 So. 2d 1340 (La. 1995). In addition to Cook v. Cook, supra , the court cited Oxelgren v. Oxelgren , 670 S.W.2d 411 (Tex. Ct. App. 1984); In re Marriage of Wood , 66 Or. App. 941, 676 P.2d 338 (1984); Konzen v. Konzen , 103 Wash. 2d 470, 693 P.2d 97 (1985); In re Marriage of Beltran , 183 Cal. App. 3d 292, 227 Cal. Rptr. 924 (1986); Parker v. Parker , 750 P.2d 1313 (Wyo. 1988); Scott v. Scott , 519 So. 2d 351 (La. Ct. App. 1988); Carranza v. Carranza , 765 S.W.2d 32 (Ky. Ct. App. 1989); DeLoach v. DeLoach , 590 So. 2d 956 (Fla. DCA 1991); and King v. King , 78 Ohio App. 3d 599, 605 N.E.2d 970 (1992).
Nonvested Pensions - Classification. Military retirement benefits have been classified as marital property in most states, even in cases where the military spouse has not served the requisite 20 years for the pension to vest. South Carolina's high court adopted this view in Ball v. Ball , ___ S.C. ___, 445 S.E.2d 449 (1994). Whether vested or nonvested, pension plans are deferred compensation. The court reasoned that the military spouse's participation in the pension plan is an actual right existing at the time of the divorce, even though the compensation, if received, is deferred. Such a pension can be included as marital property even though it has no value until it vests, the court added. In such cases, it said, the trial court should only determine the portion of the plan to which the nonmilitary spouse is entitled.
Marital Portion of Payments. The marital estate includes only that portion of a military pension which is earned during the marriage, the Nebraska Supreme Court held. Since the husband and wife were married for 13 of the 24 years that the husband was in the military, the marital estate included 13 twenty-fourths of his military pension, the court decided. Reichert v. Reichert , 246 Neb. 31, 516 N.W.2d 600 (1994). The court went on to hold that the amount deducted from the husband's military retirement pay for term life insurance should not be excluded from the amount of the payments when determining the extent of the military retirement benefits that should be included in the marital estate. The allotment to pay for the insurance constituted no more than a direct payment from the husband's pension account into his life insurance account, the court reasoned.
Federal law limits the retirement pay that a court may equitably distribute, a judge cautioned in concurring opinion in a Virginia appellate case. The pay that a court may equitably distribute is "disposable retired or retainer pay," which consists of total monthly pay minus deductions set out in Sec. 1408(a)(4). Cook v. Cook, supra (Benton, J., concurring) (citing Mansell v. Mansell , 490 U.S. 581 (1989)).
Distribution. A recent South Carolina case, Ball v. Ball, supra , discussed contributions that bear on the distribution of military retirement pay. Throughout the parties' marriage, which lasted over nine years, the husband was enlisted in the Army. The trial court awarded the wife 23% of any pension benefits received by the husband, reflecting the ratio of the number of years the parties were married to the total number of years of the husband's military service. The husband contended that the award was error because the wife's conduct during marriage had been detrimental to his career. He presented evidence that she had cashed bad checks at military facilities, causing his check-cashing privileges to be revoked, and that she had falsely reported that he had failed to honor his financial responsibilities. Accordingly, her share of his pension should be substantially reduced or barred, he argued.
The South Carolina Supreme Court approved the award, pointing out that the husband had not shown that he was actually harmed by the wife's conduct. There was substantial evidence that the wife made significant contributions to the marriage; in particular, she moved with him numerous times, and she cared for his two children from a prior marriage, the court pointed out. The trial court did not abuse its discretion, the court concluded.
Benefits Other Than Retirement Pay
Separation Pay. Several years ago the United States Armed Forces began offering selected members the chance to separate voluntarily in return for special benefits. As explained in more detail in a Department of Defense pamphlet entitled Voluntary Separation Incentives , Congress authorized the Voluntary Separation Incentive (VSI) and the Special Separation Benefit (SSB) programs to help the Department use voluntary means to reduce the size of the Armed Forces. By 1997, there will be 25% fewer men and women in the active Armed Forces than there were at the end of 1990, the pamphlet says.
As explained in the DOD pamphlet, the SSB program offers a single, lump-sum payment upon separation equal to 15% of the member's final monthly basic pay multiplied by 12 and multiplied again by the member's years of active duty service, while the VSI program provides a stream of annual payments equal to 2.5% of the member's final monthly basic pay, multiplied by 12, and multiplied again by the member's years of active duty service, with the payments being made each year for two times the number of years of service. Members who are notified that they are eligible for voluntary separation may elect whether to apply and may choose which incentive they desire if accepted for voluntary separation.
Divorce cases in which military spouses have elected voluntary separation are now beginning to wend their way through the courts. Regarding the question of how state courts will treat VSI/SSB in a divorce proceeding, the DOD pamphlet says that "[t]he treatment of VSI or SSB is not dictated by Federal law. It will be up to the state courts to rule on the divisibility of these incentives."
Courts so far have reached differing conclusions, although the factual posture of the cases may partly explain that difference. The first reported case on the issue was In re Marriage of Crawford , 180 Ariz. 324, 884 P.2d 210 (Ct. App. 1994), which held that a lump-sum SSB payment was community property. The parties' 1989 dissolution decree awarded the wife a percentage of the husband's future military retirement benefits. In 1992 - after 19 years and three months of service - the husband gave up the prospect of military retirement benefits and voluntarily left the Air Force in return for a lump-sum SSB payment. When the wife filed for an order to show cause, the trial court awarded the wife the same percentage of the SSB payment that she would have received under the decree, dividing the husband's military retirement benefits. The appellate court upheld the award, rejecting the husband's contention that courts cannot distribute SSB payments because there is no provision in the SSB legislation allowing for division.
The court found that division of SSB payments is not contrary to congressional intent; on the contrary, legislative history showed that the SSB program was intended to assist separating personnel and their families. The court emphasized that the husband gave up his right to receive retirement benefits and said it would not be fair to allow a husband to transform a community property interest into a separate interest by choosing to forgo retirement benefits for SSB income. "An employee spouse cannot defeat the nonemployee spouse's interest in retirement benefits by invoking a condition wholly within his or her control," the court declared. 884 P.2d at 213. Regarding the husband's argument that the SSB was severance pay that should be classified as separate under Kuzmiak v. Kuzmiak , 176 Cal. App. 3d 1152, 222 Cal. Rptr. 644 (1986), the court said that Kuzmiak was inapposite because it involved separation pay for an involuntary discharge rather than a voluntary separation.
In Abernethy v. Fishkin , 638 So. 2d 160 (Fla. DCA 1994), a Florida appeals court accepted Crawford as persuasive and upheld an award granting a former wife a share of her husband's VSI payments in a postdivorce proceeding. The parties' 1992 dissolution decree incorporated their agreement that the wife would receive 25% of the husband's military retirement pay. The husband agreed not to pursue any course of action that would defeat the wife's right to her portion of the retirement pay, and he also agreed to self-implement the provisions of the agreement by taking any action necessary to effectuate the spirit and intent of the agreement. Two months after the decree, the husband chose voluntary separation and selected the VSI option. The wife thereafter filed enforcement proceedings, and the trial court ordered the husband to pay the wife 25% of every VSI payment immediately upon its receipt. The husband appealed, arguing that under the reasoning of McCarty v. McCarty, supra , federal law precludes state courts from distributing VSI benefits in dissolution proceedings.
Citing Crawford , the Florida appellate court rejected the husband's argument and approved the order. As with military retirement, the court observed, VSI payments primarily are based on the recipient's ending salary and years of service. One court has referred to VSI and SSB benefits as "inducements to elect early retirement," the court noted, citing Elzie v. Aspin , 841 F. Supp. 439, 440 (D.D.C. 1993). Further indicating Congress's intent to treat VSI payments in the same manner as retirement benefits, the court said, are the facts that VSI benefits, like retired pay, are reduced by the amount of any disability payments the member receives and that the Retirement Board of Actuaries administers both the VSI Fund and the Military Retirement Fund.
The court went on to hold that even if Congress had not authorized state courts to distribute VSI benefits, it still would affirm the trial court's order, because the order did not assign or award VSI benefits to the wife and instead merely required the husband to pay the wife 25% of each VSI payment. By unilaterally electing VSI benefits and refusing to pay the wife, the husband had breached his agreement, and the trial court could enforce the agreement and final judgment by requiring him to make payments from his personal funds, the court said.
In McClure v. McClure , 98 Ohio App. 3d 27, 647 N.E.2d 832 (1994), an Ohio appellate court declined to follow Crawford and Abernethy . During the parties' divorce proceedings, the husband chose to resign from the Air Force after 16 years of service rather than be involuntarily discharged, and he began to receive VSI payments of $17,400 annually in a lump sum. The trial court determined that the VSI payments were his separate property not subject to division, and the wife appealed.
The Ohio Court of Appeals held that the VSI payments were more analogous to severance benefits than retirement benefits, and thus were the husband's separate property. The legislative history of the Act creating the VSI program revealed that Congress enacted the legislation because of its concern over the effect of strength reductions on service members and their families, the court noted. Like severance payments, the court said, VSI benefits attempt to compensate a separated service member for future lost wages, and severance payments intended to compensate for wages lost after the divorce cannot be characterized as marital property. The mere fact that the amount of the payments is determined according to the number of years of service does not necessarily render these payments compensation for past services, the court said.
Crawford and Abernethy were distinguishable, the court found, because in each of those cases, the divorce was finalized before the husband decided to voluntarily separate from active duty. The action by Abernethy violated his specific duties under the parties' settlement agreement, and when Crawford chose to separate, he was only nine months away from being entitled to receive his retirement benefits, the court commented. Hence, these courts were compelled to find the incentive payments to be marital property in order to prevent manifest injustice. In this case, the equities did not compel a similar finding, because the husband was given an ultimatum to accept voluntary separation or face immediate involuntary separation. Under involuntary separation, the husband would have received only a single $30,000 lump-sum payment; by choosing to accept the VSI payments, he insured a higher, more consistent income from which the court was able to award spousal and child support. Furthermore, the court pointed out, his choice to voluntarily separate did not divest the wife of any interest previously awarded to her.
Survivor Benefits. Maryland courts have the authority to order a party to maintain a former spouse as the beneficiary of the Survivor Benefit Plan, the state's high court decided in Matthews v. Matthews , 336 Md. 241, 647 A.2d 812 (1994).
The court's opinion includes a detailed review of the SBP. When enacted in 1972, the plan did not expressly provide that a former spouse was an eligible beneficiary, but in 1982 Congress amended the SBP to expressly authorize participants to provide annuities to former spouses. 10 U.S.C. Sec. 1448(b)(2). That amendment provided that "[n]othing in this chapter authorizes any court to order any person to elect under section 1448(b) of this title to provide an annuity to a former spouse unless such person has voluntarily agreed in writing to make such election." In 1986, Congress again amended the SBP, deleting the provision requiring a voluntary written agreement for former spouse protection and inserting the language that "[a] court order may require a person to elect or to enter an agreement to elect . . . under section 1448(b) of this title to provide an annuity to a former spouse" 10 U.S.C. Sec. 1450(f)(4). The husband contended that this amendment did not confer authority upon Maryland courts to require a party to maintain a former spouse as the beneficiary of the SBP, and that the Maryland legislature had to enact enabling legislation to complement the federal law before Maryland courts may affect the military survivor benefits. Not so, held Maryland's high court. After reviewing a number of cases holding that state courts have the power to require a party to maintain an SBP for the benefit of a former spouse, the court found that none of the courts in those cases identified any state enabling legislation in support of their holding. The court added that its own search of the law in each of those jurisdictions had uncovered no state enabling legislation. Accordingly, it held, 10 U.S.C. Sec. 1450(f)(4) vests state courts with the power to require a participating member to designate a former spouse as a beneficiary under the SBP.
The husband also argued that the SBP is a form of life insurance and that the Maryland Insurance Code precludes a court from ordering the election of a former spouse as the beneficiary of the SBP. The court held, however, that the SBP is in the nature of an annuity rather than life insurance and, consequently, that it is not governed by the Maryland Insurance Code . The SBP provides for a monthly annuity to be paid to a designated beneficiary following the death of a participating service member, and the federal statute itself repeatedly refers to the benefit interest as an annuity, the court noted.
Finally, the husband contended that since the parties got married only two years before his retirement, the SBP was nonmarital property. The wife argued that marriage during a substantial period of active duty is not a prerequisite to the award of benefits under the SBP. The court rejected the husband's argument. The statutory proscription against distribution of nonmarital property did not apply because requiring the husband to maintain the wife as beneficiary did not constitute a transfer of property, the court held, citing In re Marriage of Ziegler , 207 Cal. App. 3d 788, 255 Cal. Rptr. 100 (1989).
A spouse who has already retired and has elected to participate in the SBP by the time of divorce may be ordered to continue his participation in favor of the former spouse, a Texas appeals court held. Morris v. Morris, supra . The husband held that the trial court erred by prohibiting him from changing his survivor benefit beneficiary. Federal law has preempted this area and state courts are not free to substitute their decision for Congress's action, he contended. The appeals court pointed out, however, that 10 U.S.C. Sec. 1447 provides that if a divorce occurs after retirement and the member of the SBP had initially elected to participate in the SBP when retiring, a court may order continued participation by the member in favor of the former spouse. Since the husband admitted he had the benefit in place, the trial court was within its authority to order the husband's continued participation, the court concluded.
USFSPA, in Sec. 1408(a)(4)(D), requires SBP premium payments to be deducted when calculating the amount of a military spouse's disposable retired pay, a Missouri appellate court held. In re Marriage of Strassner , 895 S.W.2d 614 (Mo. Ct. App. 1995). The Nebraska Supreme Court held, however, that the SBP cost was not a true deduction that should be excluded from the marital estate, because the husband said he would stop paying for this benefit unless ordered to pay by the court. Reichert v. Reichert, supra .
Disability Benefits. The Supreme Court made it clear in Mansell v. Mansell, supra , that state courts may not treat military retirement pay that has been waived to receive veterans' disability benefits as property divisible in a dissolution action. But may a trial court prohibit a spouse from waiving retirement benefits in the future or require a military spouse who does so to indemnify the other spouse?
In In re Marriage of Strassner, supra , the decree included a provision that precluded the husband from reducing his pay by waiving military retirement benefits so as to increase his disability benefits, and which required him to indemnify the wife for any reduced payments. The Missouri Court of Appeals held that the provision was within the trial court's discretion and did not violate USFSPA. In making the order, the trial court did not prospectively divide disability benefits, but instead provided a manner of enforcing the property division contained in the original decree, the court said. It decided that the wife should not be required, as in Clauson v. Clauson , 831 P.2d 1257 (Alaska 1992), to return to court for a reallocation of property in the event that the husband waived military retirement pay for disability benefits sometime in the future. That approach would promote uncertainty and would be inconsistent with the notion of a final property division, the court said. The approach used by the trial court protected the wife's right to receive the property she had been awarded, or its value, without specifying an improper source of funds for indemnification.
As support for its holding, the court cited Owen v. Owen , 14 Va. App. 623, 419 S.E.2d 267 (1992) (provision requiring husband to indemnify wife if he took any action to defeat wife's rights did not impermissibly divide disability benefits, because order did not specify the source from which husband was to pay wife if he breached the provision), and McHugh v. McHugh , 124 Idaho 543, 861 P.2d 113 (Ct. App. 1993) (where decree precluded husband from changing amount paid to wife from his retirement pay, and he subsequently waived a portion of his retirement pay to receive disability pay, trial court did not impermissibly divide his disability benefits when it increased wife's percentage of retirement pay).
Retainer Pay. In a recent California case, an appeals court discussed "retainer pay" and concluded that it was synonymous with retired pay for purposes of an award of retirement benefits. In re Marriage of Hughes , 26 Cal. App. 4th 34, 31 Cal. Rptr. 2d 250 (1994).
The parties' stipulated judgment recited the dates of the husband's military service and called for the wife's lawyer to prepare a qualified domestic relations order (QDRO). The husband refused to sign the proposed QDRO, however, because he insisted that the wife was not entitled to receive her share of retirement payments while he was receiving retainer pay as a member of the Fleet Marine Corps Reserve. After his retirement upon completing 20 years of active duty, he had transferred to the reserve and would receive retainer pay during his 10 years of service in the reserve. The wife would not be entitled to her share of retirement payments until he retired, and at that point the total years of military service would equal 30 for purposes of calculating the community portion of the pension, he argued.
The California Court of Appeal rejected the husband's arguments, citing In re Marriage of Davis , 113 Cal. App. 3d 485, 169 Cal. Rptr. 863 (1980). The court in Davis noted that retainer pay is based on the number of years the military spouse served on active duty, and the amount does not change when a member of the reserve transfers to the retired list. Performance of services in the reserve is not a condition to receipt of retainer pay; the only condition is the member's availability to serve in the event of war or national emergency. Membership in the reserve is merely a condition precedent to receipt of retired pay, just as living to retirement age may be a condition precedent to receipt of benefits under other retirement plans.
After reviewing Davis , the court in Hughes concluded that the months of membership in the reserve should not be included when calculating the community interest in retired pay. Moreover, the court held, the wife was entitled to receive her share of payments now, rather than when the husband completed his years in the reserve. The years in the reserve do not modify the amount of the retirement benefit, the court pointed out. Therefore, each dollar the husband was now receiving as retainer pay was exactly the same as it would be if it were labeled retirement pay, the court said, citing In re Marriage of Mercier , 48 Cal. App. 3d 775, 121 Cal. Rptr. 886 (1985) (the difference between retainer pay and retirement pay is one of semantics).
The court also noted that retainer pay is the same as retirement pay under USFSPA. The statute which delineates the means by which a nonmilitary spouse may enforce court-ordered military retirement payments is entitled "payment of retired or retainer pay in compliance with court orders," the court noted, citing Sec. 1408. Furthermore, Sec. 1408(a)(7) specifically states that "[t]he term `retired pay' includes retainer pay," the court added.
Some other courts have likewise treated retainer pay as retirement pay. See Feick v. Thrutchley , 322 Md. 111, 586 A.2d 3 (1991) (the term "military retirement pay" as used in the parties' property settlement agreement included "retainer pay" paid to the husband following his transfer from active duty to the reserve); In re Marriage of Lawson , 409 N.W.2d 181 (Iowa 1987) (husband's transfer to reserve after 20 years of active duty constituted retirement from the Navy within the meaning of the parties' property settlement agreement). But see Sprott v. Sprott , 576 S.W.2d 653 (Tex. Civ. App. 1978) (retainer pay received by a fleet reservist was not community property); Taggart v. Taggart , 552 S.W.2d 422 (Tex. 1977) (husband's 10 years in reserve should be included when calculating community portion of husband's retirement benefits, because at the end of his 20 years of active duty he was not entitled to receive any retirement benefits).
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