This is the fourth in a series of articles on dividing military pensions in a divorce. Read our other articles on military divorces and retirement.
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DISPOSABLE RETIREMENT PAY
As you learned in our "Basics of military retirement pay division" article, when the time comes to divide military retirement pay, the National Defense Authorization Act (NDAA) of 2017 (and 2018) restricts which parts of retirement pay can be divided. Only "disposable pay" can be awarded in a divorce. So, you may be asking "what is considered "disposable retirement pay?" Determining disposable retirement pay requires figuring out:
First, what counts as divisible retirement pay?
Then subtracting the authorized deductions.
What portion of Retirement Pay is Divisible?
The NDAA of 2017/2018 essentially divides divorces into two categories, those that occur before military retirement and those that happen after. Which category you fall into will determine your divisible retirement pay.
If your divorce occurs prior to the member’s retirement, the military member’s total divisible income is: "the amount of retired pay to which the member would have been entitled using the member's retired pay base and years of service on the date of the decree of divorce, dissolution, annulment, or legal separation" plus cost-of-living amounts granted to military retirees from the time of the (divorce) to the date the member retires minus authorized deductions. Essentially this means an ex is not entitled to any increases in retirement that happen after the divorce is finalized, except cost of living adjustments.
If your divorce is finalized after the military member retires then the whole retirement pay is divisible, less authorized deductions.
What are the authorized deductions?
Authorized deductions are amounts of money that can be subtracted from total divisible retirement pay to determine the final "disposable retirement pay number." The authorized deductions depend on the effective date of the parties’ divorce, dissolution, annulment or legal separation. If the divorce was on or after February 3, 1991, the authorized deductions are:
Amounts owed to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay;
Forfeitures of retired pay ordered by court-martial;
Amounts of retired pay waived in order to receive compensation under Title 5 (federal civilian employment) or Title 38 (Department of Veterans Affairs) of the United States Code;
The amount of the member's retired pay under 10 U.S. Code Chapter 61 (Retirement or Separation for Physical Disability) computed using the percentage of the member's disability on the date when the member was retired (or the date on which the member's name was placed on the temporary disability retired list);
Premiums paid as a result of an election under 10 U.S. Code Chapter 73 (Survivor Benefit Plan) to provide an annuity to a spouse or former spouse to whom payment of a portion of such member's retired pay is being made pursuant to a court order.
If a former spouse was awarded a percentage of a member’s disposable retired pay, changes in the member’s authorized deductions will result in a change in the amount the former spouse receives.
Deductions 1 and 2 are pretty self-explanatory and not very common, so I won't spend time discussing these. Deduction five relates to any premiums associated with SBP. To learn more on SBP premiums read our article on the topic. Let's focus on Exclusions 3 and 4, with exclusion 3 being the most common exclusion.
Disability Payments
Exclusions 3 and 4 relate to disability payments. A member’s disability payments are not a divisible asset. The attempted division of Military Disability Retired Pay (MDRP) and VA disability compensation is one area where the law is pretty clear that the former spouse is not entitled to any piece of this money regardless of length of marriage, time on active duty, etc. These deductions can be slightly more confusing than the other deductions, so we are going into a bit more depth here. The impact of disability payments can be very significant and greatly reduce the amount a civilian spouse will ultimately receive.
There are two different types of disability pay, VA disability compensation (Exclusion 3) and Military Disability Retired Pay (Exclusion 4).
Exclusion 3: VA Disability Compensation
VA Disability Compensation compensates servicemembers for injuries or disabilities that occurred while on active duty, or which were made worse by active service, including mental or physical injuries that are service-connected (meaning while on active duty, not necessarily from combat operations). For example, VA disability compensation could cover something like a shoulder injury that is the result of routine physical training. The disability rating system is used to determine a servicemember's disability percentage. This percentage entitles a retiree to receive disability compensation from the VA. A useful calculator to estimate disability payments is available here.
The law states that a servicemember CANNOT receive both VA compensation for a disability and their military retirement, so servicemembers are required to waive a portion of their gross DoD retired pay, dollar for dollar, by the amount of their Department of Veterans Affairs (VA) disability compensation pay; this is known as the VA waiver (or VA offset). VA compensation is typically considered better than retirement pay because it is tax free and, crucially for this article, not divisible in divorce court.
If a service member waives any portion of military retired pay in exchange for VA disability it decreases the "disposable retirement pay" by the amount waived. This will decrease the amount that the spouse gets and, under the law, this is perfectly permissible and, arguably, Congress' intent.
Example (using easy round completely made-up numbers): Military retiree Lt Col Dan and civilian Sue are divorced. In their divorce decree it says that Sue gets 50% of Lt Col Dan's disposable retirement pay. Lt Col Dan gets $3,000 a month in retirement pay, but he is also 20% VA disabled, which we will pretend equals $600. He opts to waive $600 from his retirement pay so he can receive for tax free VA disability pay. This means $600 of his retirement pay is now disability pay and is not divisible. The "disposable retirement pay" amount is $2,400. Sue gets 1/2 of $2,400. Under the law, she gets none of the $600 that Lt Col Dan waived.
As with any good rule however, there are exceptions to this exclusion! While the law requires a servicemember to perform the VA offset, Congress has passed two programs which allow some retirees who receive VA disability compensation to recover some or all of the retired pay that retirees waives. These programs are called Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC). Both of these affect the division of military retired pay in a divorce. These rules can be very confusing and only apply to a small subset of people. If you aren't that person. Skip it and move onto Exclusion 4.
A. Concurrent Retirement and Disability Pay (CRDP)
In 2003, Congress passed the Concurrent Retirement and Disability Pay (CRDP), 10 U.S.C. §1414, which allows certain eligible retirees to collect both retired pay and disability benefits concurrently.
Specifically, when a military member retires with at least 20 years of qualifying military service and a VA disability rating of at least 50%, CRDP allows the retiree to collect full retired pay AND full VA payments.
In this case, the VA offset is returned to the servicemember and there is no reduction for VA payments. The retiree will get every dollar of retired pay that was formerly waived for VA disability compensation. A servicemember doesn't even need to apply for CRDP. When DFAS is notified of the VA disability rating if a member qualifies for CRDP, DFAS will automatically make the adjustment. In this situation, VA disability payments are still not divisible, but retirement pay and CRDP are both considered disposable retirement pay and divisible a former spouse under a military pension division order.
Example (using the same scenario from above): Military retiree Lt Col Dan and civilian Sue are divorced. In their divorce decree it says that Sue gets 50% of Lt Col Dan's disposable retirement pay. Lt Col Dan retires. He get $3,000 a month in retirement pay. Lt Col Dan is determined to be 50% disabled due to a shoulder injury. Lt Col Dan will receive (around) $1,500 in VA disability pay. He will receive the full $1,500 in retirement pay and another $1,500 in CRDP pay (which returns the money from the offset). The "disposable retirement pay" amount is $3,000. Sue gets 1/2 of the disposable retirement pay. Pursuant to exception 4, she does not get any VA disability pay.
B. Combat Related Special Compensation (CRSC)
Beginning in 2003, and expanded in 2004, Congress made a new form of special compensation available to a limited number of retirees called Combat Related Special Compensation (CRSC), 10 U.S.C. §1413a. CRSC is a monthly entitlement that allows eligible military retirees to recover some or all of their retired pay that was offset by their VA disability compensation. Eligible retirees must have a combat-related injury of at least 10%. If they do, they may receive a share of their offset military retirement pay. The exact amount of CRSC is based on the VA tables and it increases with the number of a retiree’s dependents (spouse, spouse and child, etc.) and the percentage of disability that qualifies.
Note: The CRSC percent likely won't be the same percent as the overall VA disability rating. VA disability rating is based on ALL service-connected conditions. Combat-related conditions are only those conditions caused by combat (as defined above).
This means, a servicemember could be rated at 40% by the VA, but only 10% of that rating may be CRSC eligible, since only some of his disabilities are combat-related.
The benefit to the servicemember, in addition to simply getting more money, is that CRSC payments is that, unlike CRDP, they are still disability pay, so they are tax free and not divisible in a divorce. This entitlement is paid each month along with any retired pay the servicemember may already be receiving. Unlike CRDP payments, CRSC are not automatic. Servicemembers must apply to receive the benefit, but they can be paid retroactively if a servicemember waited to apply.
A disability is considered to be combat-related under 10 U.S.C. §1413a (e) if it:
a. Is attributable to an injury for which the member was awarded the Purple Heart; or
b. Was incurred (as determined under criteria prescribed by the Secretary of Defense)—
i. As a direct result of armed conflict; or
ii. While engaged in hazardous service; or
iii. In the performance of duty under conditions simulating war; or
iv. Through an instrumentality of war.Example:
CAPT Jones retires and receives $4,000 per month in retirement pay. He is rated as 25% disabled by the VA. The VA chart will determine what amount this equals, but for simplicity we will say it is $1,000 in disability pay. He waives his retirement pay and performs a VA offset, so he receives $3,000 from his military retirement and $1,000 in VA disability pay. CAPT Jones was also injured in Iraq. He applies for CRSC and it is determined that he has a 10% disability related to combat. Under CRSC, this means he qualifies to receive some of his offset money back. He will receive the value of a 10% disability pay as determined by the VA schedule. Let's pretend this equals $400. That means he will receive $3,000 from retirement pay. $1,000 from the VA, and a CRSC payment of $400. The $3,000 is considered disposable retirement pay and is divisible in divorce. The $1,000 from the VA and the $400 CRSC payments are tax free non-divisible disability payments.
This next session discusses how CRDP and CRSC work together.
If this doesn't apply to you, skip it.
Click here to go to Exclusion 4.
C. CRSC and CRDP Together
Some servicemembers will qualify for both CRDP and CRSC, but a servicemember cannot receive both CRDP and CRSC. DFAS will automatically determine which option is the best for the member (based on cash payout) and elect that for them. DFAS doesn’t consider that the retiree may have a property division garnishment in effect. If CRDP is more favorable in gross dollars, then that is what’s chosen. This means, for example, that if CRSC in a particular case were $500 and CRDP for the same year were $501, then CRDP would be chosen for the retiree, even though CRDP is taxable and subject to a garnishment division with the ex-spouse. However, it's important to note that if a servicemember is eligible for both CRDP/CRSC every year DFAS has "open season." During open season DFAS sends the servicemember a letter with instructions about how to change the election from one program to the other. This happens every year and the servicemember can change it every year if they want.
Example 1:
Col Frank retires and receives $4,000 per month in retirement pay. She is rated as 50% disabled by the VA, the value of which would be determined by VA charts, but for the sake of nice round easy numbers we will say equals $2,000 in disability pay. Since she is 50% disabled, she qualifies for CRDP and $2,000 of her offset is returned to her. This means she will receive $2,000 in retirement pay, $2,000 in CRDP, and $2,000 in VA disability pay. Col Frank was also hit by shrapnel in Afghanistan. She applies for CRSC and it is determined that she has 10% disability related to combat. Typically, she would receive back 10% of her offset money, but she is already getting her offset back under CRDP. She cannot receive both CRSC and CRDP payments. DFAS will figure out which is more valuable to Col Frank. Since her CRSC payment would be about $400 and the CRDP is worth $2,000, she would get the CRDP payment in lieu of the CRSC payment. The $2,000 retirement pay and the $2,000 CRDP are both considered disposable retirement pay and are divisible in divorce. The $2,000 from the VA is tax free non-divisible disability payments.
Example 2:
Same as above except when Col Frank applies for CRSP it is determined that her entire disability, 50%, is related to combat. Since she qualifies for both CRSC and CRDP, DFAS will figure out which is more valuable to Col Frank (remember my numbers are made up, so 50% disabled won't actually be $2000, you have to use the VA charts for real numbers).
For the sake of this example, let's assume that the value of the CRDP is $2,001 and the CRSC is $2,000 (nice easy numbers). On the thing the VA WILL NOT consider is Col Frank's court order stating her ex spouse gets 50% of her disposable retirement income. So, is she collects CRDP, her spouse will get half. If she collects CRSC, her ex spouse will get none of it. In this example, She would receive $2,000 retirement pay and $2,001 CRDP, both of which considered disposable retirement pay and are divisible in divorce. The $2,000 from the VA is tax free non-divisible disability payments. In this case, her spouse would get $2,000.50 and she would get $4,000.50.
Changing Example 2 slightly:
If the value of the CRDP is $2,000 and the CRSC is $2,001 (just reversing the above). Col Frank would collect CRSC because it is more. Now, she would receive $2,000 retirement pay. She would also receive $2,001 in CRSC payment and $2,000 from the VA. All of this money is tax free, non-divisible disability payments. In this case, her spouse would get $1,000 (half of the divisible retirement pay) and she would get $5,001, half retirement, plus all the VA and CRSC.
Exclusion 4: Military Disability Retired Pay
The second type is disability compensation from the Department of Veteran's Affairs is Military Disability Retired Pay (MDRP). The DoD may retire a servicemember who is deemed physically unfit to perform their duties as the result of an injury incurred in the line of duty. These individuals are essentially forcibly retired.
Under Title 10 USC Ch. 61, to qualify for disability retirement, the servicemember must have:
Completed at least 20 years of creditable service , in accordance with 10 USC 1208,
or have service-connected disabilities that caused the Soldier to be unfit for duty and amount to a combined disability rating of 30 percent or more.
Remember, MDRP is a "may" forcibly retire. Lots of military members get waivers and aren't retired under this program. However, if a member does received MDRP, these benefits are disability, not "disposable retired pay" and cannot be divided in divorce court.
Example: SSG Smith was forcibly retired due to a back injury and placed on the Permanent Disability Retired List with a disability percentage of 60%. Under Chapter 61, SSG Smith's disability retired pay would be based off of his percentage of disability and not service time. Given this, the entirety of SSG Smith's disability retirement pay is not subject to community property division. Per Title 10, U.S.C., Section 1408(a)(4)(A), his former spouse is not entitled to a portion of his this pay.
But wait, there is an exception here too!
If this doesn't apply to you (and likely it doesn't) skip it.
Concurrent Retirement and Disability Pay (CRDP) under Chapter 61:
CRDP can also impact Disabled Retirees under Chapter 61 and the impact can be VERY confusing. MDRP retirees may be entitled to CRDP if they have at least 20 years of service qualifying for regular or Guard/Reserve retirement before they are made to retire due to their disability. When this happens, the member will again receive their disability pay AND their retirement pay.
Special caveats:
CRDP cannot exceed the amount of retired pay to which the individual would have been entitled if he had retired based upon years of service (i.e., longevity retirement).
Any disability retired pay that is in excess of retired pay to which the servicemember would be entitled to for longevity retired pay remains subject to the VA offset and cannot be restored under the CRDP program.
Example: SMSgt Smith was forcibly retired due to a back injury and placed on the Permanent Disability Retired List with a disability percentage of 60%. At the time of his disability retirement, SMSgt Smith had served 20 years and was retirement eligible. Under Chapter 61, SSG Smith will receive disability retired pay based off of his percentage of disability and not service time. Under CRDP, he is now also eligible to receive his retirement pay in addition to his disability retired pay. The entirety of SMSgt Smith's disabled retired pay is not subject to community property division. However, his regular retirement pay that he receives under CRDP will be divisible.
Conclusion
As you can see, when you are dividing a military retirement among spouses, there are a lot of unknowns. Even if you are certain the person will reach retirement, there is likely no way to predict whether there will be deductions from disposable retirement pay which is some cases will leave a civilian spouse with nothing, or at the very least a reduced amount. Whether you are a civilian or a servicemember, you need to keep in mind these deductions when negotiating the value of that retirement because it could work to your great advantage or disadvantage, depending on the situation.
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