A servicemember’s retirement pay is considered marital property. Depending on the length of the marriage and the court’s order, a percentage of the marital portion of the retirement pay is reserved for the former spouse upon the servicemember’s retirement. Due to a recent Supreme Court decision, a former spouse may now lose a significant amount of their awarded percentage of the servicemember’s retirement pay.
In Maryland, upon entering a “judgment of absolute divorce,” couples negotiate what, if any, percentage of the servicemember’s retirement pay will be awarded to the former spouse. If a servicemember applies for and receives disability benefits, the Department of Veteran Affairs (DVA) automatically reduces the member’s retirement pension on a dollar-for-dollar basis. This automatic waiver prevents members from double-dipping and receiving both retirement pay and disability benefits. In practice, in exchange for the disability benefits, a member’s retirement pay is decreased which also results in a decrease for the former spouse. Put simply, the former spouse will receive a smaller piece of the pie than what was originally contemplated.
Until recently, Maryland and many other states, treated the award of the servicemember’s retirement pay as a contractual arrangement. This permitted the former spouse to retain their agreed upon portion of the servicemember’s retirement pay if and when a servicemember obtained disability benefits or increased benefits after the divorce which resulted in a waiver of their retirement pay. The court interpreted the waiver as a dilution of the former spouse’s share. Finding this arrangement unfair, Maryland courts continued to enforce the award in the judgment of absolute divorce. In other words, the servicemember was still required to pay the difference because the amount anticipated was or could have been the basis of the agreement reached between the parties.
A recent Supreme Court decision, Howell v. Howell, has changed the way Maryland and other states have treated such circumstances. Now – regardless of what the award was – a former spouse is only entitled to receive a portion of the retirement pay even if that retirement pay is now significantly smaller. The Supreme Court suggested that state courts consider the unreliability of the former spouse’s portion of retirement pay when making a marital award and, if applicable, compensate the spouse elsewhere. For example, perhaps this would increase alimony or a lump sum award.
In a recent Court of Special Appeals case, the court interpreted Howell to mean that a veteran always has the possibility of obtaining a disability rating or new rating that would increase their disability benefits (effectively decreasing their pension on a dollar-for-dollar basis). Therefore, the court determined that negotiating and/or relying on an assumption that the value of the pension would not change given the possibility of a new or changed disability rating is unreasonable. If the parties don’t take this into consideration when dividing marital assets than the losing party – the non-military spouse – will suffer the consequences.