Supreme Court Ruling May Cut Spouses' Divorce Pension Payments

Disabled military retirees may end up paying their former spouses much less after this week's Supreme Court decision.

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Typically in a divorce, retirement pay is divided between a veteran and an ex-spouse. Some qualifying vets give up a portion of retirement pay in return for disability pay. Because the latter isn't considered a marital asset, some states forced vets to make up the difference in additional payments to former spouses.

The ruling, issued May 15, says lower courts can't order a veteran to make the extra payments.

The case the court considered, Howell v. Howell, centers on an Arizona Air Force couple who divorced in 1991. At the time of the divorce, John Howell's upcoming pension was considered a "marital asset" under a federal law known as the Uniformed Services Former Spouses' Protection Act (USFSPA), and split 50-50 with his former spouse, Sandra.

But when John received a 20 percent disability rating in 2005 from the Department of Veterans Affairs, he elected to waive a portion of his monthly retirement pay under pension offset rules, about $250, in order to receive his full monthly VA award. The result, however, was that Sandra's portion of the pension went down by about $125 a month.

Federal law blocks many vets with a VA rating under 50 percent from receiving both a federal pension and disability pay, known as an "offset," with one reduced by the other, according to court documents. Most military retirees elect to receive their full disability pay instead of their full military pension because pensions are subject to federal income tax, while disability pay is not.

But disability pay is not considered a "marital asset." The result is that selecting disability pay instead of retirement pension reduces any money a former spouse can claim in a divorce.

An Arizona court had ruled that John must make up through another payment the $125 Sandra lost after he elected to receive disability pay. It was John's appeal of the decision to the U.S. Supreme Court that resulted in the new ruling.

The ruling could have sweeping implications for both veterans who want to protect their income against divorce settlements, and former spouses who have been awarded retirement pay in a divorce without consideration for how a future disability rating may affect the decision.

Officials with the Veterans of Foreign Wars (VFW) celebrated the ruling as a win for nationwide consistency in how USFSPA is applied to divorce settlements. Previously, some states had ruled that retirees are required to make up for the ex-spouse's lost income, while others had not.

"We're pleased with the Supreme Court's ruling in this case," Brian Duffy, VFW national commander, said in a statement. "This will, hopefully, provide some much needed consistency across the country and ensure some certainty for veterans."

The court noted in its decision that judges should consider the impact of the offset when dividing assets during divorce settlements.

"A family court, when it first determines the value of a family's assets, remains free to take account of the contingency that some military retirement pay might be waived," the decision states.

But some veteran spouse advocates worry the ruling could have negative implications for former spouses who rely on spousal support to get them on their feet after a divorce. In many instances, medically retired troops can waive their pension and instead elect to receive as much as $8,000 a month through various disability payments, but have few other divisible assets that a court can consider for filling the gaps for the lost annuity. And while married, they said, the spouse is required to report the disability payments as "household income" when applying for school loans or any other kind of assistance, reducing the number of income-based benefits for which they would otherwise qualify. Yet during a divorce, that "household income" cannot be included in the settlement.

"How are you saying that it's not a divisible asset if I have to use it, claim it to get benefits for myself?" said Lisa Colella, whose non-profit Healing Household Six advocates for and assists military veteran caregivers. "How can they keep saying that you have to claim that income before the divorce, but after the divorce you're not entitled to that same income you had to claim? It doesn't make any sense."

Colella said her organization's clients, many of whom are victims of domestic violence, have nothing to fall back on after a divorce because they've given up their lives and any chance at a career to take care of their veterans, only to be forced out of their marriages for safety reasons.

"We have Vietnam-era caregivers that have been caregiving for 20 years or more. So what happens if they get divorced?" Colella said. "Do they say, 'That's it, sorry?' They've given up everything to take care of this person."