Military retirement pay continues to raise issues

Military retirement pay and disability benefits continue to be a big problem, as courts across the country give different answers as to how they should be treated after a divorce.

The military’s rules for dividing retirement pay at divorce are very complex. While it’s possible for an ex-spouse to be entitled to a share of retirement pay, the military also allows veterans who become eligible for disability benefits to substitute disability for retirement pay in certain cases – sometimes with a tax advantage for doing so.

The question then becomes whether an ex-spouse who was eligible for a share of retirement pay is also eligible for a share of the disability benefits – and if not, whether a military retiree must make up the difference.

In a recent case in Arizona, a disabled Vietnam vet was receiving monthly military disability benefits, but hadn’t yet retired when he got divorced. His wife got half his future retirement in the divorce decree.

But he later became eligible for something called “combat-related special compensation,” which gave him tax-free benefits in exchange for a dollar-for-dollar reduction in his retirement pay. He opted for these benefits, which eliminated his ex-wife’s share of his retirement.

The Arizona Court of Appeals said this was unfair, and the husband had to fully compensate the wife for the loss of the retirement benefits she was awarded in the divorce.

But in a similar case in Mississippi, a wife got 40% of her husband’s military retirement pay for 10 years. When the husband elected disability benefits in place of a big chunk of his retirement pay, he reduced his monthly payments to her from $571 to $120.

The woman complained, but the Mississippi Supreme Court sided with the husband. According to that court, a law passed by Congress said that a state divorce judge couldn’t order a redistribution of military disability benefits.