Congress enacted the Uniformed Services Former Spouses' Protection Act (USFSPA), allowing the division of military retirement pay in a divorce, but specifically prohibiting the division of VA disability pay.
Thus, today, when dividing property of divorcing military couples, courts routinely divide retirement benefits, even if they will be awarded in the future.
A problem occurs when a divorced military member does not qualify for retirement with military disability pay, or if the disability occurs or is detected after retirement, he or she might elect to receive monthly payments from the Department of Veterans Affairs (VA).
VA benefits are not subject to property division because they are excluded from the definition of disposable income under the USFSPA. This means that the servicemember, by electing VA benefits instead of retired pay, may defeat his/her former spouse's claim to a share of the pension benefits.
Such was the occurrence in the 2002 Massachusetts appellate case, Krapf v Krapf. There the parties executed a separation agreement dividing their marital property equally. The order that divided military retired pay gave to the wife 50 percent of the husband's retired pay. After he retired in 1997, the husband received a 10 percent disability rating, which was increased a year later to 50 percent. Two years later he was determined to be 100 percent disabled. The monthly pension share to the wife went from $1,009 in 1997 to $145 in 2000.
The trial judge determined that the parties entered into a contract in which they agreed to divide equally their marital estate and not to do anything that would have the effect of destroying or injuring the other party's ability to receive the fruits of their contact. Implicit in this agreement was a covenant of good faith and fair dealing. By waiving his military retirement pay in order to receive veterans' disability payments subsequent to the execution of the separation agreement, the husband in effect deprived the wife of her entitlement to 50 percent of his military benefits, and the result was a violation of the covenant of good faith and fair dealing. The appellate court found that the judge's order simply enforced the parties' separation agreement in order to ensure that the wife received her agreed share of the marital estate.
Although USFSPA is a federal law that should be applied uniformly, the state courts have, differed in their interpretation and application of it.
The appropriate remedy is to ensure that a " good faith and fair dealing" clause makes it into the separation agreement.
Some courts have held or suggested that the USFSPA may be avoided if the military member has agreed to indemnify the former spouse for any reduction in benefits.
Consulting with an attorney well versed in understanding the impact of the USFSPA is beneficial and cost-effective in avoiding the potential landmines of military divorce.