Michigan Court of Appeals decides important military pension case

In Megee v Megee, ___ Mich App ___ (Docket No 292207, decided November 16, 2010), Plaintiff ex-husband appealed by leave granted the trial court’s order that directed him to act as trustee for the benefit of defendant with respect to half of plaintiff’s monthly combat-related special compensation (CRSC), (disability pay) and then deliver those funds to the defendant ex-wife. The COA reversed and remanded.

In Megee, the parties were divorced in September 1989. Defendant Wife was awarded 50 percent of Plaintiff Husband’s Navy disposable retirement pay as part of the property division. The judgment incorporated a Qualified Domestic Relations Order (QDRO) to enforce that provision. The QDRO acknowledged the 50-percent division of plaintiff’s disposable retirement pay, also referred to therein as his pension. The QDRO also prevented H from making another benefit election “that would otherwise reduce the monthly pension allotment without the written consent [of defendant].” In 2008, ex-H was deemed eligible for disability benefits (“CRSC“) related to combat-related activities and exposure to Agent Orange in Vietnam. His election, however, would require ex-H to waive further receipt of his retirement pay. He elected to receive CRSC, resulting in termination of his retirement pay. As a result, ex-W stopped receiving her 50% of his retirement pay under the QDRO. Ex-W filed a motion to enforce the divorce judgment and QDRO, and the trial court entered the challenged order that effectively forces ex-H to pay ex-W half of his CRSC.

The COA held that a military spouse remains financially responsible to compensate his or her former spouse in an amount equal to the share of retirement pay ordered to be distributed to the former spouse as part of a divorce judgment’s property division, in cases where the military spouse makes a unilateral and voluntary post-judgment election to waive the retirement pay in favor of disability benefits contrary to the terms of the divorce judgment.

The COA made a distinction, however, that is important to understand. The COA stated that what is to be divided is “waived” retirement pay in order to honor the terms and intent of the divorce judgment. The COA clarified that its ruling did not mean that a state court has the authority to divide a military spouse’s CRSC, nor that the military spouse can be ordered by a court to pay the former spouse using CRSC funds. Instead, the compensation to be paid the former spouse as his or her share of the property division in lieu of the waived retirement pay can come from any source the military spouse chooses, but it must be paid to avoid contempt of court. Further clarification was that the COA wasn’t holding that a military spouse is precluded from using CRSC funds to satisfy the spouse’s obligation if he or she wishes. In these situations, because the ordered “replacement” compensation must relate to the military spouse’s retirement-pay obligation and not the disability pay now being received, and because the military spouse, having made the election, will no longer actually be receiving the retirement pay, it may be necessary on occasion to determine/review whether any adjustments to the retirement pay would have been made had the military spouse continued receiving the retirement pay.

The trial court was reversed because it specifically designated that the ex-H must compensate his ex-W from CRSC funds and it required the ex-H to pay an amount equal to half of his CRSC (prohibited by federal law) and not half of his envisioned retirement pay. As a result, the COA remanded for entry of an order requiring plaintiff to compensate defendant with monthly payments, from any source or combination of sources chosen, in an amount equal to 50 percent of his retirement pay that he would be receiving but for his election to waive the retirement pay in favor of disability benefits.

This case is very important from this perspective. In the past, retired service members have often maintained that, once they became eligible for and selected CRSC by reason of injuries sustained in service to his/her country, the disposable retirement pay subject to the QDRO was no longer subject to division. They relied on Mansell v Mansell, 490 US 581; 109 S Ct 2023; 104 L Ed 2d 675 (1989), holding that federal law precluded the court from ordering a retired service member to give any of his CRSC to a former spouse. This often left the former spouse with nothing, particularly inequitable when, in many military families, the primary asset is the military retirement.

You’ll want to review this Court’s discussion of how the issues are impacted by certain sections of the United States Code, the Uniformed Services Former Spouses’ Protection Act (USFSPA), 10 USC 1408 et seq. and the definition of “disposable retired pay.” You’ll also want to review the specific language of the judgment in the underlying case. After due consideration of those issues, the COA found in the Megee case, distinguishing the instant case from the Mansell case as follows:

We find that the issue properly framed is whether a military spouse remains financially responsible to compensate his or her former spouse in an amount equal to the share of retirement pay ordered to be distributed to the former spouse as part of a divorce judgment’s property division, where the military spouse makes a unilateral and voluntary post-judgment election to waive the retirement pay in favor of disability benefits contrary to the terms of the divorce judgment.

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We glean from Mansell some important, if not subtle, points. First, Mansell did not entail an attempted division or distribution of the husband’s VA disability benefits; rather, it concerned payments to the wife in an amount equal to half of the husband’s total retirement pay, even though a portion of that pay was no longer being received by the husband, considering that he had waived receipt of that portion in favor of VA disability benefits. Here, the trial court effectively divided plaintiff’s CRSC and, although Mansell did not directly address division of disability pay, the USFSPA clearly does not allow such a division. Subsection (c) of the USFSPA permits a court to treat only “disposable retired pay” as “property of the member and his spouse,” and CRSC is “not retired pay,” 10 USC 1413a(g). Accordingly, the trial court erred in dividing plaintiff’s CRSC and in forcing plaintiff to pay a portion of his CRSC to defendant. However, on the subject addressed in Mansell, i.e., dividing waived retirement pay, the Mansell decision actually supports making plaintiff in the case at bar pay defendant half of the retirement pay that he would be receiving but for his election to take CRSC.5 The Mansell Court found that waived retirement pay could not be divided as property in circumstances where the pay had been waived in favor of Title 38 VA disability benefits, given that the definition of “disposable retired pay” in 10 US 1408(a)(4)(B) excludes consideration of amounts waived in order to receive Title 5 or Title 38 compensation. Under the reasoning and rationale in Mansell, there would be no prohibition here against considering for division waived retirement pay under the USFSPA, as we are addressing a waiver of Title 10 CRSC not mentioned in §1408(a)(4)(B). Thus, all of plaintiff’s envisioned yet waived military retirement pay can be divided without offending the USFSPA or Mansell. Accordingly, there is no bar to ordering plaintiff to compensate defendant in an amount equal to 50 percent of plaintiff’s envisioned retirement pay as intended under the terms of the divorce judgment after plaintiff made a unilateral and voluntary postjudgment election to waive his retirement pay in favor of disability benefits contrary to the terms of the judgment.   

Appellate cases from several other jurisdictions were considered in arriving at the COA’s decision, and you may read the COA’s discussion of them in the opinion. The following strong statement makes clear the COA’s firm stance on the issue, which is one of equitable distribution and enforcement of the judgment of divorce in a manner consistent with the parties’ and the court’s intent upon entry of that judgment.

We agree with the following sentiments expressed by the Superior Court of New Jersey, Appellate Division, in Whitfield v Whitfield, 373 NJ Super 573, 582-583; 862 A2d 1187 (2004):
It is important to emphasize the procedural posture of this case. The issue is one of enforcement of a prior equitable distribution award, not a present division of assets. Wife does not seek to divide her former husband's disability benefits in violation of Mansell. Nor does she seek a greater percentage of her husband's military pension than she originally received at the time of his retirement pursuant to court order. Moreover, wife does not seek to alter the terms of her veteran-spouse's retirement plan or to compel the Department of Defense to make direct payments to her in excess of those permitted by federal law. The remedy she seeks, and that to which she is entitled, is an enforcement of the original order which was in effect before her former husband retired and unilaterally elected the waiver. [The trial court] appropriately accomplished that result by requiring husband to make up the shortfall in his former wife's equitable distribution award occasioned by his actions.

The trial court's determination does not hinder husband's receipt of veterans' disability benefits. Nor does it impinge upon federal statutory rights husband has under the USFSPA or violate the doctrine of pre-emption. Rather, the determination is whether under our state law the trial court has the authority to interpret and enforce a judicial decree entered prior to the retiree's unilateral election of a method of payment that has tax advantages to him and adverse consequences to his former wife. We conclude that our court does have that authority. This was an appropriate remedy to avoid the inequities that would be imposed on a spouse who had no control over, but suffered the consequences of, the other's unilateral election to switch retirement benefits to tax-free disability benefits.

The Court of Appeals was thorough in its consideration and discussion of case from other jurisdictions and the need to provide relief to the non-military spouse. The Court of Appeals stated in conclusion:

We hold that a military spouse remains financially responsible to compensate his or her former spouse in an amount equal to the share of retirement pay ordered to be distributed to the former spouse as part of a divorce judgment’s property division, where the military spouse makes a unilateral and voluntary post-judgment election to waive the retirement pay in favor of disability benefits contrary to the terms of the divorce judgment. Conceptually, and consistent with extensive case law from other jurisdictions, we are dividing “waived” retirement pay in order to honor the terms and intent of the divorce judgment. Importantly, we are not ruling that a state court has the authority to divide a military spouse’s CRSC, nor that the military spouse can be ordered by a court to pay the former spouse using CRSC funds. Rather, the compensation to be paid the former spouse as his or her share of the property division in lieu of the waived retirement pay can come from any source the military spouse chooses, but it must be paid to avoid contempt of court. To be clear, nothing in this opinion should be construed as precluding a military spouse from using CRSC funds to satisfy the spouse’s obligation if desired. In these situations, because the ordered “replacement” compensation must relate to the military spouse’s retirement-pay obligation and not the disability pay now being received, and because the military spouse, having made the election, will no longer actually be receiving the retirement pay, it may be necessary on occasion to determine/review whether any adjustments to the retirement pay would have been made had the military spouse continued receiving the retirement pay.
Accordingly, although we agree with the trial court that plaintiff must compensate defendant, we reverse the trial court’s ruling because its order required plaintiff to pay defendant from CRSC funds and required plaintiff to pay an amount equal to half of his CRSC and not half of his envisioned retirement pay. We remand for entry of an order requiring plaintiff to compensate defendant with monthly payments, from any source or combination of sources chosen, in an amount equal to 50 percent of his retirement pay that he would be receiving but for his election to waive the retirement pay in favor of disability benefits.

The case was reversed and remanded for proceedings consistent with the COA’s opinion. The Court did not retain jurisdiction. Appellate judges deciding this case are: William B. Murphy, Patrick M. Meter, and Douglas B. Shapiro.

You may read Megee v Megee, ___ Mich App ___ (Docket No 292207, decided November 16, 2010) here.

Comments

[Navy]

There is no "vesting" of military Retired/Retainer pay. Future Federal employment gives a preference for veterans and allows military time to be "bought". There is no atomatic conversion of military retired/retainer pay if in fact there is any. A miliatry members needs to complete 20 years... one day less than 20, no retired/retainer pay. The government does not cash out or pro rate retired pay like a company or state employees would get from a qualified pension plan if they left employment early. Remember , military retired/retainer pay is NOT a pension.

[Jeanne M. Hannah]

Marianita, if your former husband left military service before 20 years, he would lose his right (thus your right) to a military pension. However, significantly, he may have gone into a federal job that allows transfer of the military pension rights . . . so that they would count toward another federal pension benefit. You need to learn more about that because it may result in your entitlement to retirement benefits.

[Marianita Lopez]

Hypo:
Husband (military member) has been in the military for 15 years, same number of years of marriage. Husband and Wife divorce on 15th year of marriage. The divorce decree awards Wife 1/2 of Husband's military retirement pay.

One year after the decree is entered Husband leaves the military (perhaps voluntarily, perhaps because he did something bad and was kicked out) and thereby loses any retirement benefits he would have been entitled to when he reached 20 years of service.

Does this decision mean that Husband would still be responsible to pay Wife 1/2 of what he would have received if his retirement benefits had vested? Or does the above ruling apply only to benefits that are already vested?

[Navy]

Unbelievable.. The courts double talk and manipulate the true intent of the law to fill their coffers. If in their "all knowing" judgement that the military retirement will be compensated from any financial source. No retirement..no source. What a bunch of crooks these appellate judges are. They need to to put on a flak jacket and deploy to the desert.