U.S. Supreme Court Clarifies Property Rights in Military Divorces

This summer, the United States Supreme Court held that a state court may not force a veteran to reimburse a divorced spouse for the forfeiture in the divorce spouse’s share of the veteran’s retirement pay where the forfeiture is caused by the veteran’s waiver of retirement pay to receive service-related disability benefits. This is a relevant ruling for all married or divorced members of the military in all states and thus also relates to Rhode Island family law.

In 1982, Congress passed the Uniformed Services Former Spouses Protection Act (the Act), which allows state courts to handle military retirement pension as marital property, a share of which can be granted to the other spouse in a divorce order. The law overturned McCarty v. McCarty, which held that retirement pay was entitled to the retired service member and couldn’t be made part of a divorce settlement.

In the recent case, the divorce order of Arizona petitioner and respondent gave respondent fifty percent of petitioner’s future Air Force retirement earnings. Respondent began to receive her portion of that fifty percent when petitioner retired the following year. About thirteen years after, the Department of Veterans Affairs found that petitioner was disabled. Service members who qualify for both a pension and partial disability benefits can’t receive both, and must therefore waive part of their pension. To receive disability pay, federal law required petitioner to give up an equal amount of retirement pay.

Petitioner waived roughly two hundred and fifty dollars of his retirement pay, thereby reducing respondent’s fifty percent. Respondent asked the state family court to enforce the original order. The court held that the original order gave respondent a vested interest in the pre-waiver amount. The Arizona family court therefore ordered petitioner to ensure that respondent get her full fifty percent prior to the disability waiver. The Arizona Supreme Court affirmed, reasoning that federal law did not pre-empt the family court’s order. The United States Supreme Court granted certiorari.

The High Court held that the Arizona courts could not order a veteran to reimburse a divorced spouse for the loss in the divorced spouse’s portion of the veteran’s retirement pay caused by the veteran’s waiver of retirement pay to receive disability benefits. In so holding, the Court relied on its previous decision in Mansell v. Mansell. That case overturned a ruling by a California appellate court rejecting the effort by a retired Air Force major to reopen the divorce settlement , following his forty percent disability rating. Under California’s law, the man’s former wife had been getting half of both his pension and his disability pay. The Court held that the Act doesn’t grant state courts the power to treat military retirement pay waived by the retiree as property dividable upon divorce to receive veterans’ disability benefits. The Court reasoned that the Act’s plain language establishes that it grants state courts the authority to treat only disposable retired pay as community property.

In the instant case, the Arizona Supreme Court tried to differentiate Mansell by stressing that the veteran’s waiver in that case happened before the divorce, whereas the waiver in this case happened thirteen years after. This contrast, the Court held, meant that petitioner’s military pay when respondent received it was subject to a future contingency. This meant, in turn, that the value of respondent’s portion of military retirement pay was potentially worth less at the time of the divorce.

Nothing, the Court explained, made respondent’s benefit any the less a benefit of the share of pay that petitioner waived to receive disability benefits. Moreover, the Arizona courts lacked authority to refer to respondent’s interest in the waivable portion as having “vested.” The Arizona courts, the Court reasoned, displaced the federal rule and created an obstacle to Congress’s objectives.

Family courts, the Court explained, may still take into account the possibility that some retirement pay could be waived. They can also account for abatements in value when making calculations. In this case, however, the state courts made clear that the original divorce order divided all of petitioner’s military pay. Their decisions rested entirely on restoring respondent’s lost portion. This was in error pursuant to Mansell.

Thus, the Arizona Supreme Court’s ruling was reversed and remanded.

The Uniform Marital Property Act was enacted in 1983 to encourage sharing by spouses of property acquired during marriage by creating a class of property in which husband and wife have an equal interest. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property. While Rhode Island is not a community property state, the holding maintains relevance to Rhode Island residents who may at some point find themselves in a community property state.

TheIRS website stresses that it’s important to determine the proper domicile. Domicile is a person’s legal permanent residence and may not be where they currently live. For those in the military, people who have homes in several states, or for those who have moved frequently, figuring out which state is their proper domicile is key.

The highly competent divorce team at Bilodeau Capalbo, LLC can help you receive what you deserve following a difficult divorce. Call (401) 400-8182 or schedule your complimentary consultation today.

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