Dividing military retirement in divorce just got more complex for some

The new military retirement plan that began in 2018 alters the structure of military retirement benefits for some service members, changing the legal issues in divorces for those service members.

Military divorces in Indiana have some unique complications, including the division of military retirement benefits. The Uniform Services Former Spouse Protection Act, a federal military law, provides that military retirement pay or pensions be considered property subject to division between divorcing spouses in divorces that are granted by Indiana state courts.

On January 1, 2018, a new military retirement program began that is being called a blended retirement system or BRS. Its new features could have significant impact on military divorces going forward.

Eligibility issues

Anyone entering military service in 2018 or later is automatically in the new BRS. Service members who began active duty earlier are still in the old system, except those with under 12 years of service on January 1, 2018, may choose to opt into the BRS and leave the legacy system. This choice will only be available to this group through the end of 2018.

The opt-in decision is an important one financially that should be made carefully with financial, military and legal advice. The military is also requiring that these service members complete a mandatory online training to better understand the reasons for either staying in the old system or opting into the BRS.

The old military retirement system is called a defined benefit system for which service members become eligible after 20 years of service. They receive a monthly pension payment determined by a formula that considers historic pay rates, years of service and a 2.5 percent multiplier.

(National Guard and Reserve members' eligibility is based on a point system that approximates satisfactory service levels, rather than years of service.)

In a divorce when the service member spouse will be or is eligible for this program, the nonmilitary spouse is often granted a portion of the monthly benefit payments.

The BRS

The new plan retains a defined benefit with the multiplier in the formula reduced to 2 percent. It adds a second component that functions like a 401(k) account, called a Thrift Savings Plan or TSP. Like a 401(k), the service member puts a percentage of his or her pay into the TSP that is then matched with a deposit from the Department of Defense or DoD, according to a particular predefined percentage depending on the size of the account owner's contribution.

Two other features of the BRS are different from the legacy plan. Midcareer, the service member is eligible for a payout called Continuation Pay that is like a bonus in exchange for another three-year commitment of service. The other new feature is a lump-sum payment that the retiree can choose to take at the beginning of the pension payouts in exchange for reduced monthly payments until he or she reaches Social Security retirement age. At that point, the payments increase to the level they would have been without taking the lump sum.

Legal issues in divorce

Whether the parties to a military divorce are able to negotiate a settlement of property division in divorce that includes division of military retirement pay or unable to agree on division, requiring the judge to make this decision for them, the advent of the BRS opens a can of worms for some current and future military divorces.

Issues arise concerning how to provide for future choices a service member has like whether to opt in, whether to take continuation pay or the lump sum option, the amount of money to put in the TSP and more. In drafting a settlement agreement or advocating before a judge, these future contingencies will need to be taken into account. How will the nonmilitary spouse know about these future choices? Will all of the money in these different scenarios be considered divisible marital property?

The resolution of these and other legal issues will become more clear in 2018 and 2019 as divorce negotiations, settlements, trials and appeals work through them. It is imperative that any spouse involved in a military divorce seek the advice of an attorney who is closely following these legal developments.

The family lawyers at the Carmel office of Cross, Pennamped, Woolsey & Glazier, P.C., represent active and retired service members and military spouses in military divorces throughout the state of Indiana, including those attached to NSWC Crane Division, Grissom Air Reserve Base and other installations.