MILITARY DISABILITY RETIREMENT
RADICAL LEGISLATIVE CHANGES
NOVEMBER 2006 UPDATE

Since the Mansell decision of May 1989 (Mansell v. Mansell, 490 U.S. 581), the generally accepted view was that Military Disability Retirement Pay was not divisible marital/community property. In practice Mansell has been used to remove from the marital/community estate military pension benefits that would otherwise have to be shared with a Former Spouse. Based on recent federal legislation this is no longer the case. Moreover, there are now thousands of Former Spouse's whose benefits, diminished or extinguished by Mansell, who now, as a result of new federal legislation will again have an entitlement to a portion of the retired and disabled member's pension benefit. This new procedure is explained in detail in this Practice Aid. Unfortunately, as with many aspects of military pensions, the procedures to be followed by a Former Spouse in order to collect some portion of the retired member's restored pension is complex and the process will not be complete until 2014.

Regarding Former Spouses, Mansell resulted in an unanticipated and economically devastating loss of their court awarded portion of the Member's retirement benefits. This loss resulted from a retired member's electing a disability pension, which was immune to division in divorce, in lieu of a regular military pension which was divisible upon divorce. Under the old law a retired member had the option to elect to receive a portion of his or her pension benefit is the form of a VA disability pension. The retiring serviceperson could not receive both disability and a regular pension. Upon electing a VA disability pension a retiree's regular pension was then reduced dollar for dollar for each dollar of VA disability elected. It is not unthinkable that some retiring service persons elected VA disability over a regular pension in order to avoid obligations imposed by divorce. From the vantage point of a Former Spouse, Mansell adversely impacted on a process by which a bargained for retirement benefit; the very benefit these Former Spouse's expected to receive at the time of the Member's retirement, had been unilaterally changed by the Member into an unreachable benefit. The VA disability pension is for the sole and exclusive enjoyment of the retired Member. Further, the Member's conversion of taxable Retired Pay to tax free Disability Pay, was often the outcome of a series of waiver elections by the Member since a retiree was able to periodically increase the ratio of Disability to Retired Pay.

At least from the view of the Former Spouse, and now from the clearly expressed views of Congress these results constituted an improper diversion of a Former Spouse's marital/community property. To understand the magnitude of this loss to a Former Spouse consider this example:

Example # 1.
Facts:
Tom and Joan divorce when Tom is eight years from retirement. The Coverture Fraction(Time Rule) in this matter when Tom retires is 60%. Joan is awarded half of the marital/community portion of the pension. Tom's monthly benefit at retirement is $1,800.00. Based on the Agreement Joan anticipates the following upon Tom's retirement: to get half of the marital part or $1,800.00 multiplied by 60% multiplied by 50% or

However, when Tom retired he waived part of his pension by electing 80% disability. As a result of this VA waiver Tom reduced the portion of the pension subject to division in divorce by 80%. The result of Tom's VA waiver:

Commentary:
In effect Joan is now getting 6% of the pension and Tom is receiving the balance. Tom gets 20% from his regular pension and 80% from his VA disability pension. The above scenario is the old law outcome.
 

The legislation that is the basis for this change in the treatment of disability retirement pay is a new provision to title 10 U.S.C.A. It is termed:

CONCURRENT RETIREMENT AND DISABILITY PAY (CRDP)

This phased in restoration of a military retiree's pension annuity payments began in 2003. This pay restoration continues to be modified by federal legislation (see 10 U.S.C.A. 1414).

Effective for pensions paid after December 31, 2003, a new section was added to the U.S. Code, permitting certain military retirees (those with a 50% or greater disability rating) to receive both disability payments from the Department of Veterans Affairs in addition to their military retired pay from the Defense Finance Accounting Service (DFAS), i.e. "Concurrent Payments". The law is popularly known as "CRDP". This concurrent payment of both disability and DFAS retired pay will be phased-in through 2014.

Since the law became effective, the military (DFAS) and the Veterans Administration have been computing the "retroactive" concurrent pay due to tens of thousands of disabled and retired veterans. The family practitioner should be clear payments of Concurrent Pay is RETROACTIVE! It is likely that these retroactive payments will be sent to more than 170,000 retirees. The reason for these retroactive payments is the fact that this concurrent entitlement is automatic. No application is required from a "qualified" retiree.

ALERT:
FORMER SPOUSE'S ARE ENTITLED TO PARTICIPATE IN "RETROACTIVE" PAYMENTS MADE BY DFAS.

MALPRACTICE ALERT:
The mechanics of making payments to Former Spouse's who were denied their court ordered share of a member's retired pay due to Mansell are complex. It is safest for all Former Spouse's who believe they have been impacted by this change in federal law to contact DFAS to obtain:

Retroactive payments:
Their court ordered share of all future Concurrent Payments

Regarding this issue we ask the practitioner to consider the following question:

Is a family practitioner who represented a Former Spouse in a matter involving military retirement benefits and whose entitlement was diminished or lost as a result of the member's election of disability retirement benefits obligated to make this change in law known to his or her client so that he or she does not risk loss of "retroactive" payments?

Regardless of your response to this question, it is clearly prudent for affected attorneys to formally advise their clients of the changes discussed in this article. What is not subject to dispute is that failure on the part of a Former Spouse to press his or her claim for both retroactive and future retirement payments will be to their economic loss. If such economic loss is incurred, is a Former Spouse's attorney subject to challenge for failure to inform the client on this retroactive change in law?

ALERT:
At this time because of an original ten year phase-in of "concurrent payments", full dollar for dollar replacement will not become effective until 2014. However, it is essential that the practitioner understand the precise amount of "retroactive" and future pension benefits a Former Spouse is entitled to under CRDP.

To better understand how this phase-in works, a detailed example based on known DFAS data is provided. Due to complexity we do not in this article discuss the procedures to compute the "retroactive" portions due to a Former Spouse. This article is limited to the impact on Former Spouse's who up to now have lost part of their entitlement. Additionally, the example is relevant to prospective payments for the period 2007 through to 2014. Beyond 2014 the process should be easier to apply.

Example # 2.
Caution:
The fact pattern discussed below is but one of a great many variations that will arise as this issue develops.

Assumptions:
William is a participant in the Military Retirement System

William & Jane Smith divorce in 1996.

It is agreed that Jane will receive the Coverture Fraction (Time Rule) portion of the plan as part of a marital/community property settlement.

William retires in 2002

Based on this fraction Jane's monthly benefit is: $487.50

However, upon retirement William opts for a 90% Disability Pension.

As a result of William's action the monthly military pension subject to the Court's order is: $150.00
($1,500.00 less 90%)

The revised monthly marital/community property part is: $97.50
($150.00 multiplied by 65%)

Based on the Coverture Fraction (Time Rule)
Jane's share of the monthly non-disability pension is: $48.75

What the practitioner needs to know is how this new law will impact on his or her clients who sustained loss of benefits as a result of the military retiree electing to receive a part of his or her pension as VA Disability.

We continue the William and Jane scenario starting in 2007. For each year we will illustrate what Jane can expect.

Let us make the following assumptions as we enter the year 2007.

For the Chart below the meaning of the column headings:

Column # 1 Year
Column # 2 The increased regular pension due to CRDP
Column # 3 Marital/Community Part of CRDP benefit
Column # 4 Jane's new benefit as a result of CRDP

Note:
This illustration does not include or reflect military COLA increases.
Note:
If a member is 100 percent disabled there is no phase-in. The CRDP is the full pre VA waiver amount. This must be recognized by practitioners seeking to address this issue for their clients.

Based on the above it is be seen how the new payments to the Former Spouse increases until in 2014 this Former Spouse has been made "whole". The reader is again reminded that this Practice Aid did not illustrate the procedure to compute any "restoration" for earlier amounts due the Former Spouse. For the mathematics required for these calculations contact Troyan, Inc.

Troyan,Inc., conducts seminars for attorneys geared to this issue. These seminars, regarding revisions to Military Disability Pensions can be tailored to meet your groups particular interests.

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