In non-military divorces in Tennessee, a spouse may be awarded some, or all of the other spouse’s retirement accounts. Each spouse is entitled to an equitable interest in the marital portion of any retirement account, therefore, under normal circumstances.
Military retirement plans may be an exception to that rule. Members of the various military branches of service may retire after a specified period of service and receive retired pay. The monthly amount of retired pay is based on the years of service and rank.
Veterans may also be eligible for additional benefits including disability benefits. In order to prevent double dipping, however, a military retiree may receive disability benefits only to the extent that he or she waives a corresponding amount of their military retirement pay.
Disability benefits are exempt from federal, state and local taxes. Military retirement benefits are not. This means many military retirees will, if at all possible, choose to waive their retirement pay in favor of disability benefits in order to increase their after-tax income.
But what does this have to do with a military spouse in a divorce case? Quite a bit.
As a general rule, a spouse is entitled to share in retirement pay which is a marital asset. On the other hand, a spouse is generally not entitled to a share of post-divorce disability payments.
Federal law controls military benefits. Federal law preempts state law. This means what the federal law says controls, without regards to what the state law holds.
Where there is a pension, oftentimes a divorcing spouse will agree to receive a certain percentage of the pension payments of their ex-spouse, when their ex-spouse retires. For example, a woman might be in a 20-year marriage. She might become divorced from her husband. Ten years later, he might retire and receive a $2,000 a month pension.
As part of the divorce, the husband could agree to pay half of his later acquired pension benefits to his ex-wife. This means in the above scenario, ten years after the divorce when the husband retires, the wife will receive half of the $2,000 monthly pension payment to the husband, i.e., she will receive $1,000 per month.
Military retirement benefits are like a pension. They do not begin to pay until the person retires. As set forth above, though, a military pension has an incentive to receive disability pay, since it is not taxed. If the military person is eligible for and does receive disability pay, though, that military person likewise reduces his military retirement pay in an amount corresponding to the disability pay he receives.
This means that the same husband above, if military and receiving $2,000 a month might opt to receive a $1,000 per month disability payment. If he were to do so, his $2,000 a month retirement benefit would be reduced to $1,000 per month. This means that the wife’s payment would go from half of $2,000 to half of $1,000, i.e., it would drop from $1,000 a month to $500 a month. Meanwhile, her ex-husband would still receive the $2,000 per month benefit and, on top of it; he would not be taxed on $1,000 of it, resulting in a significant windfall to the military husband.
There has been both Tennessee Supreme Court and United States Supreme Court case law on the subject. A thorough discussion of rulings in this regard would turn this article into a book so we will not do that, here.
But there is an option that a spouse of a military individual has when it comes to dividing up future military retirement benefits. A trial judge may consider the fact that the military spouse may later reduce their retirement payments, using the disability offset referenced above. The military spouse may, therefore, ask for a larger percentage of the marital assets at the time of divorce. The reasoning behind this position would be that it avoids a significant chance of a later reduction in the military spouse’s payment from the retired military person’s retirement plan.
Military cases have a number of unique features. It is always wise to seek knowledgeable advice whenever complicated issues exist in a divorce.