If you’re like most retired or soon to be retired military, you have a few service related injuries that you might want to convert into a disability rating with the VA and collect tax free compensation. And as many of you know, when you are collecting a pension, you cannot “double-dip” and collect both VA and pension compensation at the same time. Essentially, you have to waive the portion of your taxable pension to collect the same amount in tax-free VA disability benefits.
Now if you are in the military and divorced, voluntarily reducing your pension and collecting VA disability benefits used to trigger, in most cases, an obligation on the retired service member’s part to make-up any reduced pension payments to your ex-spouse through some other means.
But not anymore . . . on May 15, 2017, the United States Supreme Court made it a lot easier for a retired service member to collect tax free VA disability benefits and reduce a former spouse’s share of the service member’s pension benefits without the need to make-up the reduced pension payments. The case, Howell v. Howell, is a case arising out of Arizona where a retired Air Force veteran received a 20% disability rating for a shoulder injury. He then waived $250 in pension compensation for $250 in tax free VA disability benefits. This “waiver” reduced his ex-wife’s share of his pension by $125 a month and she took him to Court to get it back. Arizona said she could have her portion of the pension money back – however the U.S. Supreme Court unanimously decided otherwise.
The Court ruled that Congress was very explicit in defining what types of military benefits can be divided between divorced spouses. Military pensions can be divided. VA disability benefits cannot. State courts cannot award that which Congress has not given them the power to give. The husband did not have to make-up the reduced pension payments to his ex-wife because that would frustrate the purpose of federal law.
However, this case does not completely rule out that an ex-service member will never have to make-up the waived portion his/her pension. The former spouse can still be indemnified if the service member agrees to it in a settlement agreement. In other words, if the service member contracts to indemnify his/her former spouse as part of the divorce negotiation process then indemnification is still a possibility.
What does this mean for you? Whether you are the service member or the spouse, it means you need to have a properly drafted settlement agreement negotiated by an attorney familiar with military divorces who will recognize these issues when they arise.
If you or your spouse is a member of the military and contemplating divorce, you deserve to be represented by a dedicated matrimonial attorney personally familiar with the unique situation that applies to military families. Contact Kevin J. Murphy, Esq., at 856-428-8334 for a consultation.