Division of Military Retirement Pay - Dual Coverture

© 2011 Brian Mork [Rev 2.14]

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Introduction

Divorce is a path many people have to live with, and under these situations, it is beneficial to pursue equity. In order to equitably divide the marriage asset of military retirement pay due to divorce, one must understand issues different than any other type of retirement. The issues discussed on this page apply to both Active Duty and Reserve military retirements.  If you are intested in Reserve military specific issues, please see my other web page about dividing military reserve retirement pay.

When dealing with normal civilian retirements, a coverture fraction method typically calculates what portion of a retirement was earned during the marriage, and then that portion is divided. Legally, this manifests as a "coverture fraction" that you are probably familiar with.

Dual Coverture - Promotion Enhancements

A military retirement is different because it is looked up in a 2-dimensional pay table, using time of service and rank. Reference 10 USC 12739, and 10 USC 1406 or 1407. The two factors of time and rank are independent, and cannot be captured in one fraction; a proper coverture fraction is the result of two mathematical fractions multiplied together. If only one ratio is used, the non-military spouse would benefit from all military promotions after the marriage.  A Department of Defense report to Congress (which considered input from dozens of National organizations, bar associations, and others) says:

"[Giving ex-spouse a portion of post-marriage promotion benefit] of military retired pay is inconsistent with the treatment of other marital assets in divorce proceedings—only those assets that exist at the time of divorce or separation are subject to division. Assets that are earned after a divorce are the sole property of the party who earned them. Congress should amend the USFSPA to base all awards of military retired pay on the member’s rank and time served at the time of divorce. [It is proper to] base all awards of military retired pay on the member’s rank and time served at the time of divorce. This provision should be exclusively prospective. The pay increases attributable to promotions and additional time served should be the member’s separate property.” (page 4)

“Assets that accrue subsequently are the sole property of the party who earned them. Post-divorce promotions and longevity pay increases are to military retired pay (which is a defined benefit plan) what post-divorce accruals and contributions are to private, defined benefit and defined contribution plans.” (page 71)

Aso see pages 58, 71, and 72 of the report, in the Bibliography below. Report recommendations are implemented with written Defense Finance Account Services (DFAS) guidance and with state laws and court precedence.

Two nationally-known lawyers in the area of military family law, disagree with the DoD report recommendation.  Their arguments and rebuttals are available from a different web page discussing division of military promotion enhancements.

Retirement Division Methods

Civilian and Active Duty military retirements use calendar months as proration in the first coverture fractions because individuals work contiguous days.  For military with a Reserve retirement (not an Active Duty retirement), duty points are used in the place of calendar time in the coverture fraction because any period of calendar time may include many duty days varying down to none at all. Like Active Duty, the coverture for a Reserve retirement needs a second fraction based on rank to match the DoD report and DFAS guidance.

For military retirements, the traditional coverture method becomes a Dual Coverture method that combines two fractions (one for time and one for rank) because military retirement benefit is explicitly based time and rank, which are independent of each other. A January 2011 New Jersey Appellate Court ruling (see references) confirms the inability of time-only coverture fractions to equitably divide a military retirement asset. A blog entry from the lead defense attorney questions whether the single time fraction is viable any more.

The NJ court recognized that to equitably divide a military retirement based on pay tables (time and rank lookup), the formula requires a dual coverture fraction of time and rank. The NJ Court levied upon the military member to prove "with calculable precision" what portion of a retirement is due to rank promotion, and to prove that the spouse didn't contribute, a.k.a. that you're using the correct fractions, and that you're putting the correct numbers into the two fractions. Such proof is straitforward because the structure and precision of military retirement formulas and pay tables leave little ambiguity.

The NJ Appellate Court wrote,
"When a claim is made to exclude post-dissolution sums, the employee-spouse seeking exclusion bears the burden of proving with calculable precision what portion of the increase in the pension's value is immune from equitable distribution."
The best way to prove the precision and contribution is to reference the DoD Report to Congress and the Defense Finance and Accounting Service (DFAS) publications because they are authoritative non-biased sources that have already considered dozens of competing interests in America.  Both the DFAS and DoD documents are available below.  The DoD Report to Congress distills input from a dozen different military and legal National organizations concerned about these issues (see references at bottom). The publications document calculable precision (even provide example calculations) and clearly state that their formula accomplishes the desired goal. Their guide has several examples, so be sure to consider the examples suited to your particular situation.  All calculation methods and examples are not interchangeable, and some will be wrong for your situation.

Although the military member in the NJ case proposed dual fractions (and numbers to put into the fractions) that give results identical to the DFAS recommended formula, the NJ court rejected the proposed specific implementation, claiming that it did not give the ex-spouse passive "earnings" or present-value to future-value (COLA) adjustments from the date of divorce up to retirement. The NJ judicial panel was factually wrong about this, speaking into an area outside their area of expertise, causing huge inequitable damage to the military member in that case.

Due to a Federal interest to have uniformity among the state's rulings and protect Federal interests, there is a sanctioned method of doing these calculations espoused by the Senate, Congress, DoD, and Federal Defense Finance and Accounting (DFAS) office to ensure equitable division when additional military duty or promotions are done after a divorce. DFAS calls this method their Hypothetical Method, outlined step by step in Para 2, Page 9 of the January 4, 2010 version of the USFSPA Attorney Instructions Dividing Military Retired Pay. The NJ Appellate Court appears to have ignored factual instruction of the DFAS document.

In the DoD report to congress and the DFAS Instructions to Attorneys, the precise method of calculable precision is given to separate the portion of indivisible non-marital enhancement due to promotions. In order to clarify the calculations involved, I have made available a detailed white paper memorandum titled Attorney Instructions - Dividing a Reserve Military Retirement. This paper also includes discussion about a new Federal January 2008 law that applies to dividing Reserve Military Early Retirement.  It includes a derivation of the formulas, example legal order text, and calculation examples.  If you are taking military retirement issues to court, I recommend you print out a copy, have it reviewed by a CPA and then pay the CPA to show up as an expert witness. The "Hypothetical Method" the NJ Court refers to on pg 19 of its opinion, and the Dual Coverture method the NJ Court refers to on pg 22 are mathematically identical. The Dual Coverture method appears to be better.

The Dual Coverture method uses two fractions multiplied together. One fraction is a time ratio (duty during marriage/total duty), and the other is a rank ratio (basepay of rank at divorce/basepay of rank at retirement). Be careful to use the same year's pay charts when looking up the numerator and denominator for the rank ratio--doesn't matter which year chart you use because you're using just a ratio, not the isolated values. Multiplying the time ratio and the rank ratios together gives the proper overall dual-coverture fraction to use in the court order sent to DFAS.

NJ Appellate Court Ruling - Coverture Fraction and COLA

In the case described in the reference blog entry, the NJ Appellate Court incorrectly analyzed the Dual Coverture method requested by the defendant. See Barr v. Barr opinion page 22-24. The court wrote
"We reject this proposition as presented because it limits plaintiff's interest as if the pension were awarded at the time of divorce, rather than deferred for almost twenty years. We have disapproved of "the mixture of two separate and distinct evaluation and distribution methods by valuing the pension in present-day dollars and then delaying distribution to a date...in the future. [The proposed method] calculate[s] the spouse's share based on present value, and defer distribution until the pension is received. Such an approach is indefensible."
The first sentence after "because..." is factually incorrect. The third sentence is also factually incorrect. The court was wrong to understand this as a problem of present-value and future-value dollars.  The 2 pages following the above quote in their opinion become irrelevant discussion because they made a faulty factual assertion. Once the factual mistake was made, judicial arguments took them down the incorrect path. They claim this method does "...valuing in present-day dollars and then delaying distribution to a date in the future." This is false, in contradiction to many Federal government accountants that looked at the problem before publishing the Dept Defense report to Congress and Senate Armed Services Committees. The Appellate Court misunderstood, and based on factual inaccuracy, made a faulty judicial decision. The method proposed by the Defendant does give COLA to the non-military spouse for all the intervening years between dissolution of the marriage and retirement, and it does give calculable precision. After retirement, both parties will get COLA each year when the military pay chart changes.

Remember whichever method you choose, the method yields only a fraction, which is then applied to continually increasing present-day military pay charts, so both parties get COLA. If you have trouble reading this, I encourage you to read my memorandum on dividing a Reserve military retirement. It gives mathematical proofs and quantitative examples down to the dollar. BOTH methods give COLA.

The situation is analogous to the Appellate Court saying, "1+1=3, and because the answer is an odd number, we reject the defendant's claim" (fact is wrong so conclusion is wrong). Sadly, the Appellate Court is where Circuit Court errors are suppose to be corrected (at great cost to the petitioner I might add). A state Supreme Court is more worried about the law, per se, not the application of law to any individual case. At present time, it is not clear to me that the court system has any remedy process to fix Appellate court mistakes that material damage.

Damages

The resultant damages are significant; rank promotions hover around 17% increase in base pay with some higher or lower (and retirement is proportional to base pay). Because the mistake comes from the military member to the non-military member, that creates a double, or 38%, error in equity.  This is huge -- much larger than 15% rule of thumb on income changes to change support payments, or the 5% threshold where medical insurance would be ordered for a child.

Multiply this error by the number of military in the nation and the number of divorces and the duration of a person's retirement time, and you'll see that this is a huge dollar issue misunderstood by the court system.  Ironically, vocational skills most fitting into a Reserve military way of life tend to include professional skills such as teacher, doctor, or ...lawyer. In a professional symposium, I recently met two civilian judges who are also Reserve military lawyers.  When they start to collect their personal military retirements, they will have a much larger vested interest in understanding these issues.

Federal Opinion

The Federal government has interest in allocating Federal retirement, and has given specific guidance that was ignored in the NJ case. Here is a quote from the DFAS manual explaining the Hypothetical Method (and inditing the New Jersey Appellate court for levying an huge injustice on the Barr v. Barr defendant). Remember the DFAS assertions have been vetted through Dept Defense, Senate Armed Services Committee, House Armed Services Committee, and undergone countless hours of public scrutiny and debate.
"We apply retired pay COLAs to the hypothetical retired pay amount up to the member’s actual retirement date to find a “present value” of the hypothetical retired pay as of the member’s actual retirement date. This adjustment does not result in the former spouse benefiting from the member’s additional service time or promotions after the hypothetical retirement date. It simply provides the former spouse with the amount he or she would have received had the member actually become eligible to receive retired pay on the hypothetical retirement date.
Notice the last two sentences mitigate the military member's concern that it's biased against them because it sounds too generous to the non-military member! There is no way to read this quote and claim, as the NJ Appellate Court did, that COLA or present value was being withheld from the non-military spouse. Remember the Hypothetical Method and Dual Coverture methods give exactly the same result down to the dollar, so when you talk about one, you talk about the other. DFAS wrote the updated manual quoted above in response to direction in the DoD Report to Congress Concerning Federal Former Spouse Protection Laws, page 71-72, dated September 5, 2001. Reading this report identifies even clearer, with an example, that the New Jersey Appellate Court was mathematically wrong:
"Congress should amend the USFSPA [laws] to provide that all awards of military retired pay be based on the member’s rank and years of service at the time of divorce. This provision should be exclusively prospective. For example, if a future divorce occurs when the member is an O-4 (i.e., Major/Lieutenant Commander) with 14 years of creditable service, the award of military retired pay must be based on that rank and time served. That the member retires as an O-6 (i.e, Colonel/Captain) with 24 years of service is irrelevant to the award of military retired pay as property.

"The pay increase attributable to the promotions and additional time served should be viewed as the member’s separate property. [emphasis mine] However, as a matter of equity, the former spouse should benefit from increases in the pay table applicable to the O-4 grade. Thus, as the pay for an O-4 with 14 years of service is increased due to increases in the pay table, so too is the value of the allocation to the former spouse. The objective in this regard should be to provide the former spouse, on a present value basis, with approximately the same amount of retired pay that he or she would have actually received had payments begun on divorce. DFAS should include a formula in its recommendations that could be used by parties who divorce while the member is still on active duty.
This Federally authoritative passage directly opposes the NJ Appellate Court claim of fact, with a specific example almost identical to the NJ case. It must be that the Appellate Court judicial panel simply didn't read this document or else were horrendously biased against the military member.

According to the last sentence recommendation quoted above from the Congressional report, DFAS did include a formula, and this formula gives results identical to the dual fraction method requested by the defendant in the New Jersey Appellate Court case. The New Jersey Appellate Court erred by making factual assertions outside their area of expertise, and in contradiction to facts asserted by the Department of Defense, vetted through the Senate Armed Services Committee, House Committee on Armed Services, and Defense Finance and Accounting Services.

Conclusion

In summary, the NJ Appellate Court properly allowed that post-marriage promotion enhancement should not be divided, introducing the Dual Coverture method into case law. However, when declining the defendant's proposed formulaic implementation of this intent, the Appellate Court made a factual error that led them to make a judicial error that mistreats and dishonors military veterans.  The NJ Appellate Court panel should vacate their January 2011 opinion and issue one that properly respecting the written recommendations of U.S. Congress, the Department of Defense, dozens of interested organizations, and DFAS.

Although I am not a lawyer, feel free to contact me if I can help work through your legal situation.

References

  1. Barr v. Barr New Jersey Appellate Court ruling, January 2011, 418 N.J. Super. 18 (App. Div. 2011). Argued by Jennifer Millner and Eliana T. Baer and Robert A. Epstein v. Mr. Silber and David E. Alberts in front of Axelrad, R.B. Coleman, and Liholts. (FindLaw.com, Law.com #1,  Law.com #2, Leagle.com,  Rutgers.edu, local copy) (31 pgs, 106kb)
  2. Uniformed Services Former Spouses' Protection Act (USFSPA) "Guidance on Dividing Military Retired Pay", 2 April 2012, 20 pgs, 119 KB pdf. (DFAS.mil, local copy)  This replaces the prior edition titled "Attorney Instructions - Dividing Military Retired Pay", April 2001, 19 pgs, 74kb pdf. (DFAS.mil, local copy).
  3. DoD Report to Committee on Armed Services of the US Senate and House of Representatives, 1998. (Defense.gov, local copy) (84 pgs, 279kb pdf)
  4. Attorney Instructions - Division of Reserve Military Retirement (local copy).
  5. Blog post Dual Coverture is better than DFAS Hypothetical Method, February 2011.

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This article originally appeared on the Increa.com blog.  The shell of this expanded document was created using AbiWord under the Linux Gnome desktop. Content was edited using Kompozer.