Tutorial on the 2017 National Defense Authorization Act and USFSPA

Introduction

This page is a tutorial on dividing military retired pay in divorce cases when the military person may be promoted before the marriage or after the divorce. Over the past decade or more, states have moved toward standardizing on a certain way to divide the pension. This web page introduces what became law in 2017 and how to actually implement it in court.

[ Update Jan 2018. Text here are mathematically correct. However, procedurally, DFAS advises that the only order text they will accept under the new law is the Hypothetical Method. See https://www.facebook.com/military.divorce.retirement.division/posts/897907877049819 ]

Demonstrating equity, the new law could increase payments to either of the spouses. Military retirements are a significant benefit, earned by both women and men. As of March 2011, there were more than twice as many military women divorcing than men. Among enlisted, the military women divorce rate is about 3x that of men. The overall military divorce rate in 2011 is 64% higher than it was in 2001. Dollar value of a military retirement in 2012 dollars range from $945,000 for an E-7 to $2,800,000 for an O-8. Military divorce is a significant social issue affecting both sexes.

If you are an attorney, it is incumbent on you to respresent the interests of your client. Being uninformed may set you up for a malpractice suite. Any military client will understand issues of honest and integrity. For ethical and professional reasons, the family law community of attorneys and courts should be interested in getting this right.

A sister web page about dividing military promotion enhancements earned after divorce has been published for years. The two issues are almost the same. A super-concise slide show is also available. The sister web page discusses with more detail how objective parties have weighed in on and agree that retirement enhancements due to promotion outside of marriage are not a marital asset and are not comingled. Six examples:

A 2001 United States Armed Services Committee report to Congress.
In 2005, the Florida Third District Appellate Court reversed (case 3D04-1468).
In 2009, a Michigan Appellate Court reversal.
On 5 May 2012, a new Oklahoma law SB1951 Section 3(F).
On 28 October 2013 the Pennsylvania House Democratic Committee held hearings on HB1192.

New Law

Spring of 2016, for the Fiscal year 2017 National Defense Authorization Act (NDAA), U.S. Representative Steve Russel (R-OK) introduced an amendment to adjust the USFSPA. This update was recommended by the September 2001 Department of Defense report to the Armed Service Committees. The proposal was unanimously accepted by the bi-partisan Armed Services Committees. The Senate version (S. 2943 Sec. 641) said,

"In calculating the total monthly retired pay to which a member is entitled for purposes of subparagraph (A), the following shall be used:

(i) The memberís pay grade and years of service at the time of the court order.
(ii) The amount of pay that is payable at the time of the memberís retirement to a member in the memberís pay grade and years of service as fixed pursuant to clause (i)."

While the House bill (H.R. 4909 Sec. 625) said,

“[member entitlement] is to be determined using the member’s pay grade and years of service at the time of the court order, rather than the member’s pay grade and years of service at the time of retirement, unless the same’’

The legislative reconciliation process yielded the final bill as shown here.

In many states, case law affirms that the marital asset is not to be affected by earning effort outside the bounds of the marriage. In Michigan, see the 1988 Kilbride Appellate decision, which was quoted, re-affirmed, and extended in the 2009 Skelly Appellate court decision. Notice Skelly abrogates Reeves 1997, Boonstra 1995, Rogner 1989, Booth 1992, McMichael 1996and MI SC Bachran 2003 decisions. The Kilibride 1998, Kurz 1989, and Lesko 1990 lineage succeeds un-challenge for POST-divorce accruals. Every counter-case is for PRE-marriage accruals or strives to clarify a Judgement of Divorce that doesn't even attempt to set aside non-marital accruals. Also, Cunningham's 2015 critique of Skelly applies only to investment awards like stock options not yet vested which is totally unlike a military situation totally earning the benefit and being awarded the benefit after divorce.

The part of Kilbridge I am basing discussion on has not been challenged and Skelly makes an even stronger case. Many other states have similar case law as Kelly. Although mathematically Kilbride arrived at a single coverture fraction, that is because there was no promotion affecting that case. To cite it supporting a single coverture fraction in the face of a post-divorce promotion is to ignore the foundational argument made by the appellate court that the marital asset must be preserved and limited to what was earned during the marriage (expressed in constant year dollars, both parties get COLA). The Kilbride decision lays out a litmus test that the marital retirement asset must be defined so that whatever either party does after the divorce cannot make it go up or down. Quoting from Kilbride,

"...the portion of a pension attributable to service credit earned before the marriage or after the divorce is not distributable as part of the marital estate."

"The decisions of the parties following the judgment of divorce must not affect the value of the distribution of a portion of the pension to the nonemployee spouse."

This is not talking about COLA increases, which both members passively receive for all time after the divorce, although states like Indiana withhold COLA from division also because it is not yet earned at time of divorce. Because there were no promotions in Kilbride, a single coverture fraction worked fine. However, the new law duplicates that calculation and also creates equity where there is a promotion outside the bounds of the marriage, consistent with the foundational argument and litmus test of Kilbride.

Mathematically, the inequitable time-only coverture method used by some courts has been:

marital asset = DRP ∗ (marital duty time / total duty time)

where "DRP" means "disposable retired pay", which is exactly defined in USFSPA. After applying this formula, typically 50% of the marital asset is awarded to each party.

The new law changes the definition of DRP in 10 USC 1408(a)(4), which is implemented by using an additional coverture fraction of monthly pay from standard military pay tables. Because the ratio is the important factor (not the two dollar amounts, per se, that make up the fraction), it’s important to note that the two monthly pay amounts at the two different ranks are taken off the same year’s pay chart – do not take one from the year of divorce and one from the year of retirement. The new method uses a new DRP. This new DRP can then used with a time-based-only coverture because the 2nd fraction is built into the definition of DRP.

DRP_new = DRP_old * (pay at divorce / pay at retirement)

The “pay at divorce” is the new thing fixed by paragraph (ii) of the law quoted above. The result is a DFAS percentage method that is not a DFAS fixed method.

marital asset = DRP_new ∗ (marital duty time / total duty time)

Or, to better compare this to the old formula, you can do the same new calculation this way:

marital asset = DRP_old ∗ (marital duty time / total duty time) ∗ (pay at divorce / pay at retirement)

Writing the formula fractions out long hand shows this IS the Dual Coverture (DC) method I've advocated for the past six years. If all the mathematics confuses you, see the slide show summary of the new method for visual aids.

I've received some push back against the new law, asking for case law examples that support the new law. This seems to ignore that correcting bad case law is the precise purpose of a new statutory law. For example, the USFSPA came about in response to a U.S. Supreme Court decision. The main point I'm trying to make is about education: if others teach factual errors and write white papers with gloom-n-doom conclusions based on false assertions and inuendoes, this provides a tremendous disservice to attorneys and legislators and judges trying to get their heads around these issues.

Please, review the material published on these web pags and let me know where it's faulty. There is a concise slide show presentation on this topic that can be used for training or continuing professional education. If an interactive conversation will help, please give me a call or email!

Examples

As an example, if a disposable retirement check was $3298 in 2016 dollars, and 4700 duty points were accrued during the marriage and 5500 duty points were accrued during the entire military career, a simple time-based coverture fraction would determine that the marital asset would be

marital asset = $3298 *(4700 / 5000) => $2818.29

The marital asset is not a fixed dollar amount because both parties receive cost of living increases proportional to the military pay table cost of living increases each year.

Also, the marital asset is not a pre-fixed percentage determined at time of divorce because the fraction is not possible to calculate until retirement is reached. For example, if no military duty is done after the marriage, the ex-spouse would get 50% of the total retirement. However, if post-divorce duty is done, the time-based or duty-based coverture fraction allows one to break out the unchanged marital asset from a retirement check and the spousal award will be less than 50% of the bigger retirement check. The traditional single coverture solution is a mathematical precise and exact calculation designed to keep the divisible marital asset the same, not to dilute it in any way. Again, to forestall confusion, we’re not talking about COLA increase which happen for both parties each year and accrues even during the years before retirement pay starts.

Okay, so a single coverture fraction works fine if there are no promotions, and DC/NDAA 2017 retain this featuer because the 2nd fraction will be 1.0 or 100%.

However, if promotion happens outside the marriage, inequity happens with the old formula. For example, if the disposable retirement check at higher rank was $5000 in 2016 dollars, and everything else stays the same, the old formula would calculate a marital asset of $5000 * (4700/5500), or $4272.72 in 2016 dollars. This is a 51.6% inequitable windfall to the ex-spouse even though they had nothing to do with the promotion and contributed nothing after the divorce!

Now, see that the new NDAA law restores the marital asset to what it should be. Since DFAS will be responsible for implementing the new definition of DRP, you can use the same time-base coverture fraction formula as shown above.

DRP_new = $5000 * ($3298 / $5000) => $3298 (DFAS does this)

marital asset = $3298 *(4700 / 5000) => $2818.29 (Division order does this)

Notice the new law makes the DRP at the time of retirement become what the DRP was back at the time of divorce. In other words, the litmus test is satisfied that the marital retirement asset must be defined so that whatever either party does after the divorce cannot make it go up or down.

For division orders formalized after 23 Dec 2016, you'll use the new definition of DRP (implicitly including one fraction) and have only the 2nd time coverture fraction explicitly named. If you want to mimic the result while using the old definition of DRP (division orders formalized 23 Dec 2016 and before - or orders that DFAS will not calculate or pay), just spell out the second coverture fraction in the division order:

marital asset = $5000 * (4700 / 5000) * ($3298 / $5000) => $2818.29

Notice the marital asset is exactly and precisely preserved, down to the penny. These results are all in 2016 dollars, and the marital asset goes up proportional to military pay charts each year, and both parties benefit from this same COLA bump-up.

If the text numbers are confusing to you and you'd rather see examples presented with visual diagrams, please see the NDAA white paper showing how the NDAA amendment (Dual Coverture method) affects the two spouses.

Correcting Bad Counsel on the Street - Falicy of "Based On" and others

Some people say the promotion enhancement (move from $3298 to $5000 is “based on” early marital work and therefore it IS a marital asset even though it occurs from active effort outside the marriage. Do not confuse passive enhancements such as interest in a bank account that cannot be dispersed yet. Here we are talking about competitive, effort-based earning activity that was done by only one party after the divorce - plus the fact that the benefit doesn't fully vest for 3 years after a promotion. The phrase “based on” is used by some to tap an intentionally undefined phrase that is confusing and manipulates court understanding one way or the other. In this context “calculated from” is much more precise and legally meaningful. In other contexts, try using "earned during" or "accrued during" -- which is probably what the divorce order says.

Much more is written critiquing the phrase “based on” in other papers in the sister web page. For now, look at the divorce decree award language and realize that the standard threshold for a marital asset includes the phrase “earned during” or “accrued during”, not “based on”. Two quick case studies: if after divorce an ex-spouse writes a book “based on” the military marriage, are proceeds divided? No. If a military pilot gets a commercial flight job after divorce “based on” their military training and flight hours, is the civilian retirement divided? No.

The other way I’ve seen the inequitable 51.6% windfall perverted is citing a legal precedence awarding passively earned interest after divorce as a marital asset, as using this as an argument to divide actively earned enhancements. Not the same! In Michigan, the 2009 Skelly Appellate court clarified that even an asset already received during marriage is not a marital asset if additional post-divorce work is required to keep it. By the way, this portends that Michigan case law may be evolving toward no division of any military retirement which requires more duty to secure it.

In any case, by implementing the Dual Coverture method or Hypothetical Method, Congress has decided the "base on" argument is false.

Four specific confusions endure from material published in an American Bar Association white paper signed in August 2016:

The NDAA requirement indicates a DFAS percentage based method, as shown on this web page and other documentation from increa.com web pages. The NDAA is not a fixed benefit division and does not fit the definition of a DFAS fixed-based method. This has BIG implications.

COLA is automatically awarded equally to both parties, using the increases in military pay charts each year. The white paper comes to an opposite conclusion. This may be because COLA is done in a confusing way by the DFAS Hypothetical Method. In contrast, the new NDAA law uses equitable, equal, and automatic COLA for both parties!

Avoid the promulgated falsehood that there are 4 DFAS acceptable division methods. This confusion may come from the fact that DFAS' Attorney Instructions gives 4 examples. There are only two acceptable DFAS types of division (nothing else) and they are exclusive (cannot be both at the same time). See Under Secretary of Defense Regulation DOD 7000.14-R vol 7B Chapter 29 Para 2906-01.C (page 29-12). In addition to clear statement in DOD Regulation, a 2005 USFSPA Army JAG tutorial makes this clear on page 11, paragraph IV.C.1. In paragraph IV.C.2, the four DFAS examples are discussed and the document "Attorney Instructions for Dividing Retired Pay and Sample Court Order" is introduced. As of mid-2016, the Chief legal counsel at DFAS explained that the Attorney Guide has been pulled from circulation and requests are being directed to the foundational regulation 7000.14-R behind it.

The ABA takes a position that the Federal government has no business invading into State divorce law ...while simultaneously supporting the 1982 USFSPA law, which is the most invasive divorce law on the books. It would be consistent to support Federal intervention or not, but not both sides of the issue.

Division Order Text

[ Update Jan 2018. Text here are mathematically correct. However, procedurally, DFAS advises that the only order text they will accept under the new law is the Hypothetical Method. See https://www.facebook.com/military.divorce.retirement.division/posts/897907877049819 ]

Using the new definition of DRP requires no special call-out in the division order. After the law's date of enactment, it will happen automatically when DFAS does the payment. Here is the actual text you can put into a client's division order. The bolded numbers must be customized.

"The former spouse is awarded a percentage of the member’s disposable military retired pay, to be computed by multiplying 50% times a fractions, the numerator of which is 168 mo, and the denominator of which is the total number of months of retirement creditable service. If a Reserve retirement is obtained, months = points/30.”

For division orders prior to the law's date of enactment or for orders that will not be paid out by DFAS, here is the actual text you can put into a client's division order to mimic the behavior of the new law. The bolded numbers must be customized. If you want to know how to do that, see the sister web page.

Sample language for a court order is available from the sister page. Reproduced here:

"The former spouse is awarded a percentage of the member’s military retired pay, to be computed by multiplying 50% times two fractions, the first numerator of which is 168 mo, and the first denominator of which is the total number of months of retirement creditable service, and the second numerator is the base pay of a 14 year O-4 rank, and the second denominator is the base pay of the member years and rank upon retirement. Both base pay amounts are to be taken from the 2009 year military chart. If a Reserve retirement is obtained, months = points/30.”

--- OR --- (combine two numerators ahead of time as shown in Area Method Practicum)

“The former spouse is awarded a percentage of the member’s military retired pay each month, to be computed by multiplying 50% times a Coverture Fraction. The Coverture Fraction numerator is 1283191. The Coverture Fraction denominator is member’s total number of retirement duty months times basepay at time of retirement. Basepay values for this formula will be looked up on the 2009 year pay chart. If a Reserve retirement is obtained, months = points/30."

For division orders that include duty time before marriage or more than one marriage, a Dual Coverture method may be insufficient and you'll need to use the complete Area Method.

Conclusion

The new law is a DFAS percentage method that is not a DFAS fixed dollar method.
In cases where promotions happen after divorce, equity (as defined by the Kilbride litmus test) is accomplished by a changed definition of disposable retired pay, or by using a second coverture fraction with the old definition of disposable retired pay.
The new law is simple to implement and has none of the "doom and gloom" implications claimed by some.

Additional engagement opportunities:

https://www.facebook.com/military.divorce.retirement.division
Confidential case analysis
Reserve Military specialty
email me

References

Slideshow primer of 2017 NDAA and USFSPA.
DFAS instructions on what to submit under the new law.
"Sample Order Language 2.pdf" published by DFAS (local copy).
DoD Report to Committee on Armed Services of the US Senate and House of Representatives, 2001. (Defense.gov, increa copy) (84 pgs, 279kb pdf)
Sullivan's Aug 2016 white paper gainst the 2017 NDAA amendment (americanbar.org, local copy).
Rebuttal to Mark Sullivan's Aug 2016 hit piece against NDAA 2017.
Rebuttal to Marshall Willick's piece against NDAA 2017.
Rebuttal to Mark Sullivan's Feb 2017 hit piece against NDAA 2017.
Demonstration of the 2017 NDAA law division formula.
NDAA amendment to USFSPA can help either spouse.
PRE-NDAA2017 Excel spreadsheet for doing Dual Coverture Value (Area Method) Calculations, September 2012. Includes court order legal language.
POST-NDAA2017 Excel spreadsheet for doing Dual Coverture Value (Area Method) Calculator, March 2017. Includes court order legal language.