The distribution of government pensions as a result of divorce is an incredibly complicated process, requiring knowledge of both the state and federal laws. For military members, there may be additional considerations due to disability pay, which they may be receiving as part of their retirement pay. This is typically done as a way to pay less taxes, since disability payments are non-taxable, while pension funds are. Thus, a disabled military member may elect to waive a portion of his or her pension, and receive that amount as disability pay. This important legal entitlement for military veterans is protected under various federal laws, including The Uniformed Services Former Spouses' Protection Act (USFSPA). This act allows state courts to distribute retirement pay to former spouses of military members, and provides Department of Defense guidelines for enforcing those distribution orders.
One of these guidelines deals with the protection of disability pay, which is not eligible for distribution in the event of a divorce. Under the USFSPA, only “disposable” retirement pay counts towards marital assets in a divorce action, regardless of individual state laws. This interpretation of the law was upheld in U.S. Supreme Court decisions such as Mansell v. Mansell (1989), and most recently in the September 2017 ruling in Howell v. Howell. In Howell, the defendant had been receiving a portion of the plaintiff's monthly retirement pay, as per their divorce agreement. In 2005, the plaintiff decided to waive $250 of his pension distribution in favor of receiving that amount as disability pay. This resulted in the defendant's distribution being reduced by $125, which she fought and won in the Arizona courts system. The plaintiff appealed the case to the U.S. Supreme Court, which reversed the Arizona Supreme Court's decision on the basis that the USFSPA supersedes state laws on disability pay resulting solely from a former military member's disability.
This is a critical decision for divorced or divorcing spouses of military members in New Jersey, since it overrides rulings on state cases like Torwich v. Torwich. In Torwich, the NJ Supreme Court established that a pensioned spouse may not voluntarily reject, terminate or waive pension benefits when it effects the non-pensioned spouse's ability to receive his or her payment. Other states such as Alaska have made similar rulings, but the Howell decision abrogates all these decisions in favor of the USFSPA. It's unknown how many people will be effected by this ruling, but there are currently an estimated 2 million military retirees, of whom 55% are subject to the disability offset. Spouses in this situation should speak to an experienced family law attorney about their rights and legal options prior to finalizing their divorce. Failing to resolve these issues ahead of time could result in the non-pensioned spouse being left with less retirement funds than he or she had anticipated, thereby resulting in financial hardship. For more information on the distribution of military pensions due to divorce, please contact the attorneys of Villani & DeLuca, P.C.