My talented Burns & Levinson colleague, Ron Barriere, has worked on several military divorce cases. In this week’s post, Ron explains important considerations regarding pensions and retirement accounts for military spouses facing divorce.
This past summer, while most Massachusetts divorce lawyers (myself included) were busily studying the new Alimony Reform Act, the Massachusetts Appeals Court issued an important decision concerning the treatment of military pensions in Massachusetts divorce cases. Casey v. Casey considered whether a military defined benefit plan could be properly included in the income of the former service member-spouse for purposes of calculating support or whether the pension itself was an asset subject to division.
By way of background, military retirement vehicles – like their civilian counterparts – commonly come in one of two varieties:
1) Defined Contribution Plans. These plans are characterized by fixed contributions paid by employers and/or employees, and contributions are then invested. Any returns on the investments are credited to the employee’s account. Common civilian defined contribution plans include Individual Retirement Accounts (IRAs) and 401(k) plans, but the most common military defined contribution plan is the Thrift Savings Plan, or TSP. The TSP – like its civilian counterparts – is easily assigned a value for the purposes of dividing assets in a divorce.
2) Defined Benefit Plans. These plans are retirement vehicles in which an employer promises a specified monthly retirement benefit to an employee that is predetermined by a formula that is usually based on the employee’s earnings history, tenure of service and age. Generally, the only “defined” characteristic of the plan is the formula to be applied to the individual employee’s earnings history. In the federal context, some common examples include Federal Employee Retirement Services (FERS) Plans and Concurrent Retirement and Disability Pay (CRDP). A defined benefit plan in pay status was at issue in the Casey decision cited above.
Because of the variable nature of defined benefit plans, the value of such assets can be hotly contested in divorce actions, sometimes resulting in “a battle of the actuaries” to determine the appropriate value to be assigned in an equitable division of the assets. It is tempting, therefore, for the parties — and the Court – to “drop back and punt” the issue of pension payments to an “if, as, and when” consideration. After all, wouldn’t it be easier for everyone to simply divvy up the money when it actually starts rolling in? However, such a wait-and-see approach may keep divorcing spouses tied to one another financially for many years, an obviously risky situation.
The Federal Uniformed Services Former Spouses’ Protection Act (USFSPA), leaves to the states the choice of whether to treat disposable retired pay earned for service during marriage as divisible property. Both the Massachusetts Child Support Guidelines (I-A(9), I-A(10), I-A(14) and Massachusetts General Laws (M.G.L. c. 208, § 34) specifically authorize the treatment of military pensions and retirement pay as income when calculating a support award. However, M.G.L. c. 208, § 34 also gives the Probate Court the authority to treat the retirement vehicles as an asset subject to division.
Though the Casey case dealt with the seemingly simpler task of the treatment of a pension plan already in pay status, the Appeals Court made clear that the treatment of such plans could have dire consequences – particularly for the recipient spouse. The stream of income would provide the receipient spouse with an interest subject to modification; and, the distribution of a marital asset would provide her/him with a fixed interest. Tax issues also arise, as child support payments and property division are both “tax free” transactions incident to a divorce, while alimony is taxable to the recipient and deductable to the payor. In the federal context, the assignment of at least some portion of pension benefits to the non-service member divorcing spouse is often necessary to ensure continuation coverage for TRICARE or other continued health insurance coverage. It is therefore critical that the specific facts and circumstances of each case be scrutinized to determine the most equitable way to treat the pension for both parties. In Casey, the Appeals Court ultimately concluded that the Probate Court had erred in treating pension payments as income as opposed to treating the plan itself as an asset subject to division.
Previously, I have written about how even the seemingly “simple” issues can be complex in the context of a military divorce. The Casey decision takes the point a step further. Any divorcing service members, or spouses of service members, should learn the nomenclature of military divorce and find qualified counsel familiar with its complexities to ensure that they are sufficiently armed for the battle of their divorce.