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Military retirement and divorce

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A reader writes:

“If my ex husband was active duty for 10 years and 20 years Reserve and he has 5300 retirement points at the rank of O-6, how much will he receive? I will receive 50%.”

After exchanging more e-mail, we learned that her ex-spouse is under the Final Pay retirement system (for those starting their military service before 8 September 1980). He filed for Reserve retirement in 2006 and will turn age 60 in late 2013. When their divorce agreement was mediated it was agreed that she would get 50% of his retirement and “spousal insurance” benefits.

Disclaimer: I’m a fast learner, but I know very little about military benefits for divorced spouses. Military divorce is a complex issue with many of the answers depending on state law and the wording of the divorce decree. Even though I can come up with a slew of numbers to answer the pension question, ex-spouses still have to check their divorce agreement. The decree also has to be filed with the Defense Finance and Accounting Service in order to claim the divorce’s pension payments. If any of this seems confusing or conflicting, it may be due to the extensive differences among state laws. It’s essential to consult a divorce lawyer with experience in military benefits.

Reserve retirement is also nearly as confusing as divorce agreements. (Reserve retirement has been the #1 search topic on this blog for nearly a year– look over to the sidebar on the right, under the “Top Post and Pages” header.) Most of my reader questions come from servicemembers, not the spouses. If the servicemembers are confused, then imagine that you’re a military spouse who’s not quite sure how the system works, and you’re not aware of what information sources could help you learn more. If your spouse is hiding the facts during a bitter divorce then the research becomes nearly impossible.

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For example, I’m sure millions of veterans have heard of the legendary military retiree who refused his pension so that his ex-spouse would not get her share of it under the Uniformed Servicemembers Former Spouse Protection Act. (One state court eventually handed down a judgment awarding her that amount regardless of whether he was receiving his pension.) A Reserve servicemember could try a similar tactic that’s completely legitimate, although ethically dubious and financially disastrous. Instead of applying for “retired awaiting pay” status, they could elect to be discharged. “Retired awaiting pay” means that at age 60 the pension will start at the max longevity for their rank and at the pay scale in effect when they turn age 60. That’s what 99.9% of Reserve officers choose, but “retired awaiting pay” means that they’re still technically eligible for mobilization.

A discharge has no risk of mobilization, but discharge also means that longevity and pay scale are frozen on the date of discharge. At age 60 the pension would start at their rank and longevity that they held on the date of discharge (their actual years of service) using the pay scale in effect on the date of the discharge (not the pay scale in effect at age 60). If a Reservist wanted zero risk of mobilization (or if they wanted a smaller pension to spite an ex-spouse) then they could choose a discharge. However choosing “discharge” instead of “retired awaiting pay” means that years of missed pay raises can reduce a pension by 10%-50%. An unsympathetic court could still award the ex-spouse the pension share that the retiree should have elected.

Even when a servicemember elects to “retire awaiting pay”, they won’t know the precise amount of their pension until they turn age 60 and can use that year’s military pay tables. However the pension amount can be estimated using today’s 2013 pay tables and then making hopeful educated guesses about how military pay will keep up with inflation until age 60.

In this reader’s case the divorce decree splits the pension (50% to each) and the Reserve retirement starts later in 2013 (the current pay table).

The military retirement pension formula is:

Pension = (service multiple) x (pay base).

“Service multiple” comes from the number of years of service or Reserve drill points (two different formulas). “Pay base” is different from “base pay”. It’s the pay amount calculated for the “Final Pay” or “High Three” retirement systems. We’ll come back to that in a few paragraphs.

Let’s start with the easier part of the retirement pay calculation: the service multiple. For a Reserve retirement it’s:

Service multiple = (# points) / 360 * 2.5% .

(The divisor is 360, not 365, because military pay is based on 30-day months. There are 360 days in a year of 12 30-day months.)

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For this reader’s situation the service multiple is:

5300 points / 360 * 2.5% = 36.806%.

The pay base for “Final Pay” is simple: the highest base pay scale earned on active duty or in the Reserves. That Final Pay number is in the O-6>40 column (maximum longevity) of the 2013 military pay table: $10,736.70/month.

The pension would be:

36.806% x $10,736.70 = $3951/month. The ex-spouse’s half of that would be $1975/month.

If the retiree’s date of initial entry into military service (DIEMS) was 8 September 1980 or later, they would be under the “High Three” retirement system. That requires calculating the average of the highest 36 months of base pay. If the retiree was turning age 60 in October 2013 then their High-Three average base pay (from O-6>40 pay tables of 2010, 2011, 2012, and 2013) would be $10,520.95.

36.806% x $10,520.95 = $3872/month.

Unfortunately that pension amount may not be the final answer. The USFSPA legislation only affects the retiree’s “disposable retired pay”, which is the pension amount minus authorized deductions. Among the authorized deductions is “amount of retired pay waived in order to receive compensation under Title 38 (Department of Veterans Affairs) of the U.S. Code”. (See Q#10 of the USFSPA FAQ at that link.) In other words, some disabled military retirees have a smaller DoD pension because they waive a portion of it in order to receive that amount from the VA.

Mahalo nui loa to Rob Aeschbach and Jason Hull for correcting my misunderstanding of the VA disability process and helping me check my references. The specific statute is in section 1408(a)(4)(B) and (C) of Title 10 of the U.S. Code and a more specific divorce discussion is at this link.

Here’s a brief example. If a military retiree has a $1000 pension and his divorce decree awards 50% to his ex-spouse, each would receive $500. If the retiree is determined to be eligible for $200 of VA compensation, they waive $200 of their (taxable) DoD pension in order to receive $200 of (untaxed) compensation from the VA. Now their “disposable retired pay” is $800 and the ex-spouse would receive $400: $100 less than they expected. The divorce decree can anticipate this issue by changing the pension payments to the ex-spouse (still limited to a max of 50% by USFSPA legislation) or awarding more funds (alimony) from other marital assets.

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If a retired veteran has a disability rating of at least 50%, or combat-related disabilities, or a Chapter 61 disability retirement, then the situation is even more complicated– and far beyond the scope of this post. Seek professional legal advice.

The rules got even more complicated in 2008. Although most Reserve pensions start at age 60, a few Reservists are eligible for a pension that starts earlier. They had to deploy to a combat zone for at least 90 days anytime after 28 January 2008. For every 90 days that they deployed during a fiscal year after that date, the starting age of their pension is 90 days earlier down to as young as age 58. “Luckily” that wasn’t the case in this situation, because the ex-spouse would have to ensure that she filed her application with DFAS before the retiree’s pension began.

Ex-spouses have to “claim” their portion of the retiree’s pension at by filing with DFAS before the pension starts. If the claim isn’t filed soon enough then DFAS will not pay retroactive to the start of the pension. This is controversial and a lawyer may be able to suggest a resolution of missed pension entitlements, but the problem can be avoided by filing the claim before the retiree starts drawing their pension.

Three more issues for this ex-spouse: first you should check whether you’re eligible for Tricare healthcare at age 60, followed by Tricare For Life healthcare at age 65 (second payer to Medicare). Many financial aspects of divorce can be negotiated while other military benefits are set by law. The expert in what’s known as the 20-20-20 rule is “Ask June” at Military.com.

Next you’ll want to check your “spousal insurance” paperwork that you negotiated during the divorce. It sounds as if you’re describing the Reserve Component Survivor Benefit Plan, which certainly covered you for the last seven years. If your ex-spouse has been voluntarily paying SBP premiums on your behalf then he can change his mind and cancel the insurance after paying two years of premiums (starting at age 60). If he remarries then he can change the beneficiary to his new spouse, but the wording of the divorce decree may affect that. If you trust that he’s treating your honestly then you’re probably getting the straight story. If you’re not sure then you need to seek a lawyer who understands military divorce, the RCSBP, and Former Spouse Coverage.

Finally, you probably already know that you may be entitled to a portion of your ex-spouse’s Social Security benefits based on his and your earnings records.

I’ll end this post by encouraging military spouses to educate themselves on their benefits.  As Kate Kashman writes over at Military.com, the more educated and involved you are then the better you’ll be able to take care of yourself and your family.  When your spouse is working on their military career, they can use your help to make sure that you both understand your pay, allowances, and benefits and use every program you can. When they’re deployed and you’re managing the family finances, you’ll need to know what you’re entitled to and where to find it. If you ever have to deal with divorce like this reader, the day you visit a lawyer is the worst possible time to start a personal cram course on military benefits acronyms.

(Click here to return to the top of the post.)

Related articles:
USAA’s “Ask June” at Military.com (with USAA’s J.J. Montanaro and Scott Halliwell)
Military divorce: what’s a given, what’s not
Get SBP right during divorce
Reader questions on Reserve retirement Tricare and points
Military Reserve and National Guard retirement calculators
Military insurance: SGLI, VGLI, SBP, and other benefits
Survivor Benefit Plan
The Reserve Component Survivor Benefit Plan
Book review: The Complete Idiot’s Guide to Social Security and Medicare

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