Military Divorce Series: The Frozen Benefit Rule

Part 1: Military Divorce: THE FROZEN BENEFIT RULE

The following is the first of a 4 part series on the changes you need to know to stay up to date on changes affecting Military Divorce, as presented by Janice Boback at the National Business Institute Continuing Legal Education for Professionals last month.

The Frozen Benefit Rule Defined

The Uniformed Services Former Spouses Protection Act (USFSPA) 10 U.S.C.§1408 was amended through section 641 of the NDAA (National Defense Authorization Act) to include a provision which re-defines the military retired pay that DFAS can divide.  The Rule provides for a uniform method of pension division in that the military member retires on the day that the judgment for dissolution of marriage is entered.  

The new rule applies to active duty members of the military, National Guard or Reserves, who get divorced after December 23, 2016 when the amount divided will be “frozen.” 

The military pay that Defense Finance Accounting System (DFAS) can divide is:

(i) the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the court order, as increased by 

(ii) each cost-of-living adjustment that occurs under section 1401a(b) between the time of   the court order and the time of the member’s retirement using the adjustment provisions under that section applicable to the member upon retirement.

10 U.S.C. § 1408 (a)(4) - Disposable Retired Pay

(A)  The term "disposable retired pay" means the total monthly retired pay to which a member is entitled (as determined pursuant to subparagraph (B) less amounts which-- (i) are owed by that member to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay; (ii) are deducted from the retired pay of such member as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38; (iii) in the case of a member entitled to retired pay under chapter 61 of this title [10 USCS §§ 1201 et seq.], are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member's disability on the date when the member was retired (or the date on which the member's name was placed on the temporary disability retired list); or (iv) are deducted because of an election under chapter 73 of this title [10 USCS §§ 1431 et seq.] to provide an annuity to a spouse or former spouse to whom payment of a portion of such member's retired pay is being made pursuant to a court order under this section. (B) For purposes of subparagraph (A), the total monthly retired pay to which a member is entitled shall be-(i) the amount of basic pay payable to the member for the member's pay grade and years of service at the time of the court order, as increased by (ii) each cost-of-living adjustment that occurs under section 1401a(b) of this title [10 USCS § 1401a] between the time of the court order and the time of the member's retirement using the adjustment provisions under that section applicable to the member upon retirement.

How the Frozen Benefit Rule Works

The USFSPA used to allow for the states to determine how to divide military retired pay. Each state has their own laws that detail the method of dividing pensions, valuation dates, what is marital vs. non-marital property, etc.  These laws included the military cases which required division of military retirement pay. This is no longer the case.

The new law freezes the military member’s retirement benefit at the time of entry of a court order.  The amount divided will be “frozen in time” as the retired pay the military member would get at their rank and years of service at the time that the order is entered.

The Service Member provides the average of the highest 36 months of continuous compensation (High 3) at the time of divorce.  This along with the years of creditable service (in an active-duty case) or the number of retirement points earned (in a Reserve or National Guard case). 

Fixing a percentage at the time of the judgment order is a way to retain value.  If you are divorced at year 10 of 20 years of service, an equal division of the marital share gives the former spouse 25% of the total (50% of 50%).   If the service members continue to serve 10 more years for a total of 30, then an equal division of the marital share gives the former spouse 16.5% (50% of 33.3%).  However, it does provide you a larger share of a smaller piece of the pie.

The Frozen Benefit Rule in a Divorce Case

You and your client can choose to enter a different type of order but keep in mind that DFAS will only honor those drafted with the frozen benefit which is what DFAS will pay.  If there is another arrangement, the service member could be responsible for payment directly to the former spouse of any additional amount.

The Service Member has an interest in getting the court order entered as soon as possible.  Once the order is entered then the non-military spouse’s hypothetical award will be frozen at that specified rank and years of service.  If the order is delayed more time will pass and there is a potential of promotion and pay increases which will then provide a potential increase to the non-service member spouse. 

The FS can always ask the court for an unequal division of the property acquired during the marriage, in an attempt to even out the entire property division scheme due to the division of a truncated asset of the SM, not the final retired pay. Or the FS can ask for a greater share of the pension to make up for the smaller amount which will be divided. 

This is the first of a 4 part Military Divorce Series covering the latest changes to the law affecting Military Divorce. If you have questions about military divorce or the unique aspects of divorce when you or your spouse is a member of the armed forces, we can help. Contact us today and let our military divorce expertise put your mind at ease.

THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/military-divorce/military-divorce-series-the-frozen-benefit-rule/

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