The military has a retirement system where, in the majority of cases, the service member has to serve a minimum of 20 years to receive retirement pay. In some cases, before the standard 20-year retirement, the service member may be retired early from the service because he or she is unable to perform his or her duty due to injury. A service member could also receive a Veterans Affairs (VA) disability rating. This raises the question: how will a service member’s disability payments factor into the division of marital property during the divorce process? The answer to this question will depend on whether a service member is retired before or after the divorce proceedings, but before we get there, it is important to understand the different types of disability payments.
There are two types of disability payments that a service member could receive.
Each specific service may deem that a service member’s physical disability suffered during his or her time in service renders him or her unfit to continue to perform duty. In this case, the service member will retire from the service with disability retirement pay. This is referred to as Chapter 61 disability retirement. Under Chapter 61 disability retirement, the service member is assigned a disability rating. The member has the option to either receive compensation based on the years of credible service or the disability rating of his or her base pay. The Chapter 61 disability retirement takes place of the service member’s standard 20-year retirement.
VA disability is another form of disability payment, and it covers all disabilities suffered in the line of duty, and the service member’s VA disability payment amount is a function of the service member’s VA disability rating and number of dependents. VA disability payments do not take the place of a service member’s 20-year military retirement or a Chapter 61 disability retirement. With some exceptions, a service member’s receipt of VA disability payments is contingent on the service member waiving an equal amount of retired pay, which will help reduce the service member’s tax burden.
Federal law allows state courts to treat disposable retired pay as payable to the service member or as marital property.
A service member’s pension, for example, is considered disposable retirement pay, and Alaska law considers the military pension a marital asset. A service member’s disability percentage under Chapter 61 disability retirement, however, is not considered disposable retirement pay. This means that the court is precluded from classifying the disability percentage of a service member’s Chapter 61 disability retirement as marital property. VA disability benefits are also not considered disposable retired pay, and federal law precludes state courts from deeming VA disability payments as marital property.
As you can see, service connected disability payments present many legal problems and financial consequences for families going through the divorce process. For many couples, the largest asset in the marital estate is the service member’s pension. Naturally, the non-military spouse will be concerned that the Alaska court cannot consider the service member’s disability as a marital asset. The good news is that federal law allows state courts to consider the economic consequences of a retiree’s decision to waive retirement pension pay in favor of collecting disability pay. Moreover, Alaska law must fairly allocate the economic effect of divorce by considering the earning capacity of the parties and the financial condition of the parties.
The first step towards solving this legal challenge is identifying when the divorce is taking place.
If the divorce is taking place prior to the service member’s retirement, it is unlikely that the service member will know how much Chapter 61 disability and/or VA disability, if any, he or she will receive. This means that the service member will have no idea whether to waive a portion of the military retirement to receive VA disability payments. The court will, however, be able to identify how much of the military pension is part of the marital estate, and it can compute a dollar amount that the non-military spouse will be entitled to receive each month. The prudent course of action is to capture the intent of the parties and to preclude the service member from waiving his or her retirement to receive disability. If the service member does waive a portion of the military retirement to receive disability, the court can order the service member to compensate the non-military spouse, which will protect the non-military spouse’s payments.
Divorce after a service member’s retirement requires different solutions than divorce before retirement. In most cases, couples that get divorced after a service member’s retirement will know whether the service member is receiving Chapter 61 disability retirement or waiving portions of his or her retirement to receive VA disability. In either case, the disability cannot be considered as part of the marital estate. When dividing the marital estate, however, Alaska law will take into consideration the financial conditions of each party. This includes the earning capacity of each party member. Disability payments can be an earning capacity factor that Alaska courts consider when it makes an unequal distribution of the marital assets, which would allow the non-military spouse to receive a larger portion of the marital estate.
The differences in disability benefits are very complex.
It is even more complex when you add the emotional consideration of divorcing your spouse and dividing property. Knowing your options and being proactive, however, can go a long way towards ensuring the best possible outcome.
Brad is the Managing Attorney at The Law Office of Bradly A. Carlson, L.L.C. His practice is focused on providing legal solutions to Alaskans throughout Alaska. Brad can be reached at 907-264-6721 or email@example.com.