In divorce, a share of “disposable retired pay” can be paid (pursuant to a court order) for as long as the retired service member receives monthly payments. “Disposable retired pay” is the portion of monthly pay which a retired service member is entitled, less VA disability compensation, federal debt repayments, fines, forfeitures and Survivor Benefit Plan payments. The court can only divide the marital portion of the payments. The martial portion is the portion of the retired pay earned while married. The portion of the pension earned prior to marriage or after the Date of Separation (in NC) is separate, non-divisible property that belongs to the service member only.
For a service member with a disability rating of less than 50%, the law requires that a military retiree waive a portion of their gross DoD retired pay, dollar for dollar, by the amount of their Department of Veterans Affairs (VA) disability compensation pay; this is known as the VA waiver (or VA offset). A service member will always choose to elect VA disability compensation because VA disability payments are tax-free benefits and results in a net increase in pay. Also, Federal law exempts VA disability payments from division upon divorce. In other words, it is not considered marital property that can be divided upon divorce.
In 2003, Congress enacted legislation to allow both retired pay AND VA disability compensation for certain classes of retirees. The restoration of retired pay is known as Concurrent Retirement and Disability Pay (CRDP). CRDP applies to retirees who have a disability rating of at least fifty percent (50%) and at least 20 years of credible service. Since CRDP exempts those whose disability rating is less than 50% and it cannot be paid when the service member is receiving Combat Related Special Compensation, the VA waiver problem is still a problem.
Retired service members can, and often do, increase their disability rating after divorce, which allows the service member to elect VA disability pay and reduce the “normal” military retirement pay (pension) that was divided upon divorce. Divorcing spouses married to a service member who retired with less than a 50% disability rating should take special note of the service member's ability to exchange retirement for disability pay because retirement pay that can be or was divided is reduced dollar for dollar by the amount of their Department of Veterans Affairs (VA) disability compensation pay.
If the service member gives up retirement pay for VA disability pay after the divorce, the ex-spouse may be in for a big surprise when he or she finds out how much the retirement pay has been reduced. It is important when you divorce to include language in a court order dividing military retirement pay that should the service member elect to reduce his retirement pay for disability pay, the service member should “make-up” the reduction by paying the former spouse directly. Since the disability pay is tax-free, the total after-tax amount the service member receives when he or she elects disability pay is more than if it was not elected, so the service member will have more after-tax retirement pay to share with the former spouse. Under a Supreme Court ruling, you cannot go back later to the court to ask that the reduced payments be made up.
For more information on this subject, see my article at Disability and Splitting Military Retirement Pay in Divorce
