In McCarty v. McCarty (1981) 453 U. S. 210, the Supreme Court of the United States held that states cannot characterize military retirement benefits as community property for purposes of a marital property division. The Supreme Court noted legislative history that construed retirement benefits as a “personal entitlement,” i.e., the separate property of the servicemember. Further, the then relevant statute and its history made clear “Congress intended that military retired pay ‘actually reach the beneficiary.'” The conflict between the terms of the federal retirement statutes and state community-property laws threatened to harm clear and substantial federal interests (presumably the ability to attract recruits), and therefore states were preempted from dividing military retirement pay in a divorce.
The next year, Congress overrode the Supreme Court’s holding in McCarty by enacting the Uniform Services Former Spouses’ Protection Act (“USFSPA”). The USFSPA specifically authorizes states to characterize as community property and divide the “disposable retired pay” of a servicemember on divorce, legal separation, or annulment. (10 U.S.C. sec. 1408.) However, the USFSPA expressly excludes from disposable retired pay certain disability benefits if the servicemember waives some or all of the disposable retired pay to which he or she is otherwise entitled. (10 U.S.C. sec. 1408(a)(4).)*
In Mansell v. Mansell (1989) 490 U.S. 581, the issue was whether the parties to a California divorce proceeding could agree to divide as community property all of the disposable retired pay – including that portion already waived by the servicemember while married to obtain service-connected VA disability payments – in a property settlement agreement, and then have the family court order the division as part of its judgment. The Supreme Court of the United States held that, although the USFSPA permits states to divide disposable retired pay, state courts are preempted by the USFSPA from ordering the division of service-connected disability compensation (despite the parties agreeing to it) in a divorce decree.
In Howell v. Howell (2017), the Supreme Court of the United States held that no matter when the election to waive a portion of retirement benefits takes place – before or after the division of the disposable retired pay, a state court cannot order a U.S. military veteran to indemnify or reimburse an ex-spouse for the corresponding reduction in the ex-spouse’s separate-property portion of the disposable retired pay.
Like California, Arizona is a community-property state, meaning generally (with exceptions) all acquisitions (including any retirement benefits earned), and debts incurred during the marriage by either spouse are to be characterized as part of the community estate and divided at the time of divorce.
In 1991, a year before John Howell retired from the U.S. Air Force, he divorced Sandra Howell in an Arizona state family court. The judgment awarded Sandra fifty percent (50%) of John’s future disposable retired pay as her sole and separate property. (John was also ordered to pay child support of $585.00 per month and spousal support of $150.00 per month until the time of John’s retirement.)
In 2005, the Department of Veterans Affairs (“VA”) rated John twenty-percent (20%) disabled due to a service-connected disability (degenerative joint disease). John elected to waive his right to a portion of the disposable retired pay equal to the amount of the service-connected disability compensation he would receive: John had to waive about $250.00 per month of the roughly $1,500.00 of military retired pay, half of which went to Sandra. This had the effect of the Defense Finance and Accounting Service reducing Sandra’s separate-property portion of the disposable retired pay by about half the amount John waived or about $125.00 per month.
In 2013, Sandra requested that the family court enforce the judgment, in effect restoring the value of her court-ordered share (roughly $750.00) of the disposable retired pay. She also requested a judgment on the alleged arrearage in the aggregate amount of each monthly reduction since John began receiving disability compensation. The family court held that the 1991 judgment had given Sandra a “vested” interest in the pre-waiver amount of that pay, and ordered John to ensure that Sandra “receive her full 50% of the military retirement without regard for the disability.” In other words, the timing of the election to waive disposable retired pay – whether before or after the division of the disposable retired pay – was the important factor in the family court’s decision. The family court ordered John to indemnify Sandra for future losses and reimburse her for past losses equal to the difference between what Sandra should have been receiving less what she was receiving after John’s election to waive a portion of his retirement – $125.00 per month.
The Arizona Supreme Court affirmed the family court’s ruling based on the timing of the waiver. It distinguished Mansell (wherein the waiver occurred prior to the property division in the divorce), reasoning that the family court was not dividing the disposable retired pay or John’s disability compensation, nor was it ordering John to rescind his waiver of disposable retired pay. Therefore, according to the Arizona courts, Mansell did not prevent the family court’s monthly indemnification and reimbursement orders.
The Supreme Court of the United States criticized the Arizona courts’ notion that Sandra’s interest had vested. State courts cannot vest that which they cannot give. It analogized the reduction in Sandra’s disposable retired pay to the age-old real estate owner’s interest wherein the interest in Blackacre is defeasible or subject to a future contingency, i.e., subject to John’s future election to waiver (reduce) disposable retired pay – here, several years after the divorce proceedings – to obtain service-connected VA disability compensation.
The Supreme Court also criticized the Arizona courts’ use of indemnification and reimbursement to avoid Mansell‘s mandate. Use of indemnification and reimbursement is a semantic effort to restore the property division.
It remains for another day whether a family court can order an increase in spousal support to offset a reduction in disposal retired pay based on a veteran’s waiver to receive disability compensation. Howell certainly provides an argument that increasing spousal support to make up for a reduction in disposable retired pay is a veiled attempt to restore a property division.
Justice Thomas wrote a concurring opinion and Justice Gorsuch took no part in the decision.
* “Disposable retired pay” means total monthly retired pay (i.e., the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the state court order, as increased by each cost-of-living adjustment between the time of the state court order and the time of the servicemember’s retirement) less: 1) any amounts owed by the servicemember to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay; 2) any amounts deducted from the retired pay as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law in order to receive compensation under Title 5 or 38 (Veteran’s Benefits) of the U.S. Code; 3) if the servicemember is entitled to retired pay for a physical disability on retirement or separation, any amounts which are equal to the amount of retired pay under that chapter computed using the percentage of the servicemember’s disability on the date when the member was retired . . . ; or, 4) any amounts deducted because of the servicemember’s election to provide an annuity under Survivor Benefit Plan or Retired Serviceman’s Family Protection Plan to a spouse or former spouse to whom payment of a portion of such member’s retired pay is being made. (10 U.S.C. sec. 1408(a)(4).)