A new way of thinking about Military Retirement Pay? Disposable Retired Pay? Think again. Divorce is a painful, messy and sometimes unavoidable, necessary part of life. Some couples accumulate considerable assets that can be the focus of contentious negotiations ending up in even more contentious litigation. The asset division process can even be more complicated when military retirement pay (MRP) is the asset being divided. A couple in Arizona found this out recently in a case decided on May 19, 2019 by the Arizona Supreme Court in Barron v. Barron, No. CV-18-0234-PR, 440 P.3d 1136 (Arizona 2019).
Federal guidelines make it easier
Federal law comes into play to guide the asset division of MRP. The Uniformed Services Former Spouses' Protection Act (USFSPA) is a federal statute for the military, guiding them to accept state statutes on issues such as child support, spousal support and military retirement pay and pensions. States have always had the authority to treat retirement and pension plans just like any other marital asset, but now the USFSPA permits the states to classify military retired pay as property, as opposed to income.
In Barron, the couple sought and was granted a divorce in 2017 in Yuma County Superior Court. The judge ordered the division of property including the MRP. One spouse was still an active member of the United States Marines. The superior court judge found that the working military spouse was eligible for retirement in 2023 after twenty years of military service and divided the parties' assets, including the MRP, with the assumption that the military spouse would retire and collect retirement benefits as soon as they became eligible.
The divorce decree provided the non-military spouse was entitled to 29 percent of the MRP. The trial judge also ordered the military spouse, if they chose to work beyond their retirement-eligibility date, to begin making payments to the non-military spouse equivalent to what they would have received as their share of the MRP had retirement been sought.
On appeal, the military spouse argued that the court improperly ordered the indemnification of the non-military spouse because they choose to remain in the military on active duty status. Barron v. Barron, 796 Ariz. Adv. Rep. 31, 35 ¶ 24, 2018 WL 3722815 at *5 (Ariz. App. July 31, 2018). The court of appeals agreed and reversed, reasoning that federal law precludes such indemnification. Id. at 37 ¶ 30, 2018 WL 3722815 at *7.Barron v. Barron, 440 P.3d 1136, 1136–37 (Ariz. 2019)
The non-military spouse argued that the indemnification order in this case was proper under Koelsch v. Koelsch, 148 Ariz. 176, 713 P.2d 1234 (1986). In that case, the court considered “how and when a non-employee spouse’s community property interest in an employee spouse’s matured retirement benefit plan is to be paid when the employee wants to continue working, thus delaying receipt of the retirement benefits.” Id. at 180, 713 P.2d at 1238. As applied to benefits that are “matured and payable,” id. at 183, 713 P.2d at 1241, “the court can order that the non-employee spouse be paid a monthly amount equal to his or her share of the benefit which would be received if the employee spouse were to retire,” id. at 185, 713 P.2d at 1242.
The Appeals’ Court held that although MRP can be treated as community property, and Koelsch permits an indemnification order under state law for public retirement benefits when a spouse elects to keep working instead of retiring, Arizona may only divide MRP to the extent permitted by federal law. See Howell, 137 S. Ct. at 1403-04.
State are granted certain authority
What is the authority granted to states by Congress with passage of the USFSPA? The holding in Howell answers that question. That case involved a former spouse whose MRP payments were reduced years after the dissolution decree because the retired military spouse elected to waive MRP to receive disability benefits. Id. at 1402. The trial court ordered the military spouse to indemnify the former spouse for her vested rights in the MRP. In re Marriage of Howell, 238 Ariz. 407, 408-09 ¶¶ 1-5, 361 P.3d 936, 938–39 (2015), rev'd, Howell, ––– U.S. ––––, 137 S. Ct. 1400, 197 L.Ed.2d 781.
In Howell, the Supreme Court held that, “Relying on the USFSPA and United States Supreme Court precedent, we concluded that although a trial court could not, at the time of the decree or thereafter, divide MRP that a military spouse has waived to obtain disability benefits, the court could require the military member to reimburse his former spouse for a post-decree reduction in the benefits she received as a result of his electing to receive disability benefits in lieu of MRP. “Id. at 409-10.
In the recently decided Barron case, the Arizona Supreme Court held that federal law precluded a state trial court from ordering military spouse in a divorce decree to pay the equivalent of military retirement benefits to the other spouse if the military spouse continued to work past their eligible retirement date. A state court could divide military retirement pay (MRP) only to the extent it was disposable retired pay payable to a member, and military retirement based on years of service was discretionary, such that a member's interest in MRP was not vested or mature until the member retired and benefits were approved. 10 U.S.C.A. §§ 1408(a)(4)(A), 1408(c)(1), 1408(c)(3).
“Federal law does not permit states to divide MRP but rather grants them the authority to “treat disposable retired pay” as community property. § 1408(c)(1) (emphasis added). “Disposable retired pay,” in turn, is defined as “the total monthly retired pay to which a member is entitled.” § 1408(a)(4)(A) (emphasis added).” Id at 1138.
Changing our language and the way we define MRP in divorce proceedings may be helpful and needed to reflect this Arizona Supreme Court decision. States have the authority to treat disposable retired pay as community property. This may not be the end of Barron if the nonmilitary spouse seeks review by the United States Supreme Court.
If you have a legal issue you need help with, the attorneys at Whitcomb, Selinsky Law PC would love to share their expertise with you. Please call (303) 543-1958.