New Frozen Benefit Rule in Military Court Orders
On December 23, 2016, President Obama signed the National Defense Authorization Act (NDAA 2017) for fiscal year 2017. NDAA 2017 contains a major revision of the formula used for pension division in Military Court Orders (MCO) as the pension benefit to be divided is frozen as of the date of entry of the Order, which is the “bright line” formula. NDAA 2017 will now override most states’ use of the coverture (time rule) formula, including but not limited to, New York, New Jersey, Pennsylvania, Ohio and California, and force the use of a bright line formula.
While the pension benefit to be divided under NDAA 2017 fixes years of service and rank as of the date of entry of the MCO, the salary to be used in the formula is increased for all cost of living adjustments (COLA) from date of MCO entry until date of retirement. Under Uniformed Services Former Spouses’ Protection Act (USFSPA), the portion that can be awarded to a Former Spouse can be no more than 50% of disposable retired pay (defined as retired pay net of disability payments that come from the US Dept. of Veterans Affairs). Putting aside disability, this limitation will rarely affect a coverture award, which is typically 50% of the marital portion, where the marital portion is defined by the coverture fraction (marital service divided by total service) times the disposable retired pay as of retirement. While the USFSPA allows a coverture award, it is effectively trumped by NDAA 2017, which essentially freezes the benefit as of date the order is entered.
How do you work around NDAA 2017 so that state law can be controlling and coverture (time rule) payments may be awarded to the Former Spouse? You draft an alimony garnishment order for division of “remuneration for employment” rather than an MCO that divides disposable retired pay. An alimony garnishment order under 42 U.S.C. §659 is based upon remuneration from employment, and not disposable retired pay. NDAA 2017 addresses disposable retired pay but does not apply to alimony payments. An alimony order is not subject to the 10/10 rule but may require a separate survivor benefit (SBP) Order.
To secure an alimony order, alimony needs to be addressed in the Marital Settlement Agreement (MSA). If the MSA addresses an MCO, the service member may object to an alimony order. Therefore, the MSA needs to specify that a consent order for spousal support will be drafted along with the usual terms of the MCO, including SBP. The member’s attorney should note that DFAS (Defense Accounting and Financial Service) only allows one survivor. If coverture is controlling in the jurisdiction of the divorce, deferred alimony under the alimony order awards the Former Spouse only to that which Former Spouse is entitled, and not an additional entitlement.
Take advantage of PAC’s expertise in drafting settlement language and military orders. Our specialized knowledge and experience in the complexities surrounding military retirement and pension division will serve to protect your clients and your practice.
For further review of the Armed Forces Retirement System, see Chapter 23, Value of Pensions in Divorce, 2016 Supplement to the Fifth Edition (WoltersKluwer:NY), co-authored by Mark K. Altschuler, M.S. and Nora Kelley, Esq.