SCOTUS: Military Retirement and State Family Law Court Ability to Order Indemnification
State court cannot order veteran spouse to indemnify or reimburse the loss in former spouse’s portion of military retirement caused by waiver of retirement benefits to receive service-related disability benefits, HOWELL v. HOWELL (May 15, 2017) 137 S.Ct. 1400.
May a state court order a veteran spouse to reimburse or indemnify the former spouse for the loss caused by the veteran spouse electing to take service-related disability payments instead of retirement benefits, when the parties’ judgment provided that the military retirement benefits were to be distributed to each of the parties? Until recently, yes, that probably would have been possible. However, the May 15, 2017 decision by the Supreme Court of the United States in Howell v. Howell turns that notion on its head.
PRIOR TO HOWELL
In 2016, the Fourth District Court of Appeal in California took up the issue of a veteran spouse reimbursing or indemnifying the other spouse for loss of payments under the parties’ judgment that arose as a result of the veteran spouse waiving his right to military retirement in order to receive combat-related disability compensation. That issue was decided in the case of In Re Marriage of Cassinelli (2016) 4 Cal.App.5th 1285.
The facts of Cassinelli were as follows:
- The parties’ Judgment of Dissolution of Marriage was entered in 1986;
- Wife received $541 per month as her community property interest in veteran husband’s military retirement pay;
- After Judgment, husband paid wife her share of the retirement pay;
- Subsequently, husband learned that he could receive a tax benefit if he waived his right to receive military retirement and began to receive combat-related disability pay instead;
- Husband waived his right to military retirement pay and began collecting combat-related disability pay;
- Wife began receiving zero because husband no longer received military retirement pay;
- Trial court ordered husband to continue to pay the $541 as permanent non-modifiable spousal support;
- Husband appealed;
- Court of Appeals reversed.
The Court reasoned that the Federal Uniformed Services Former Spouse’s Protection Act provided that state family law courts are allowed to treat disposable military retirement pay as community property subject to division in a dissolution of marriage. The Court went on to recognize that an exception applies regarding disability pay, which was discussed in a 1989 SCOTUS decision in Mansell v. Mansell (1989) 490 U.S. 581.
In its reversal, the Court reasoned that the trial court can use one theory or another to compensate a spouse for the loss of the benefits, but that the military spouse cannot unilaterally diminish the rights of the nonmilitary spouse’s vested interest in retirement pay. Thus, the military spouse could be required to reimburse the nonmilitary spouse, although not directly out of the disability benefits. The Court noted that the judgment had not required an indemnity of this nature, but decided the lack thereof was not fatal.
The reversal required the trial court to avoid using a dollar-for-dollar spousal support award as the method of reimbursement, as doing so was inconsistent with the factors required to be considered in determining spousal support as provided in Family Code §4320. The Court held that the nonmilitary spouse should be able to recover his or her interest without being required to weigh all of the factors of Family Code §4320. Instead, the Court said that the remedy is to order payment as “damages” under Civil Code §3281.
HOWELL v. HOWELL
The facts of Howell were as follows:
- The parties Judgment of Dissolution of Marriage was entered in 1991;
- Wife received 50% of husband’s military retirement pay “when it begins”;
- Wife received child support and spousal support until the time husband’s retirement pay began, pursuant to the terms of their Judgment;
- Husband retired and paid wife one-half of his military retirement payments every month for 13 years;
- In 2005, husband found out that he qualified as partially disabled as a result of a service-related injury;
- Husband elected to waive part of his military retirement pay in order to receive the tax benefit of service-related disability pay;
- Husband’s election to do so reduced the amount of retirement pay by 20%;
- Wife sought an order that husband pay the full amount she would have received if husband had not elected to take a partial waiver of retirement pay;
- Trial court ordered husband to reimburse wife for the loss;
- Husband appealed;
- Arizona Supreme Court affirmed.
The SCOTUS did not agree with the decision of the trial court affirmed by the Arizona Supreme Court, resulting in a reversal. The justices noted that the Uniformed Services Former Spouse’s Protection Act permitted state family law courts to treat veteran’s disposable retirement pay as community property, which could be divided in a dissolution of marriage proceeding.
The justices also noted an important exception, critical to understanding the result in Howell. Specifically, veteran’s disposable retirement pay is divisible in state court, except for amounts received as a result of a waiver required when the veteran elects to receive disability pay.
The justices reasoned that the timing of the waiver having occurred after dissolution was not determinative. In fact, the justices reasoned that this only supported the idea that husband’s military retirement pay was subject to a later reduction if he chose to exercise a waiver and receive disability pay. Understanding that point, a nonmilitary spouse should realize that the amount of military retirement pay he or she is awarded in a judgment is subject to change, which can affect the valuation of the retirement plan.
Moreover, the name (or label) of the remedy could not avoid the application of the rule of law described above. In Howell, the trial court attempted to get around the rule of law by labeling the remedy as a “reimbursement” or “indemnification”. While recognizing the hardship the rule of law put in place by the legislature might play in marital dissolutions, they suggested that family courts fix the problem by factoring in the contingency of waiver of military retirement pay for service-related disability when assessing valuations of military retirement benefits.
The matter was remanded for further proceedings in the lower court consistent with the opinion.
Essentially, Howell recognizes an inflexible contingency — that the military spouse might at some point in the future decide to waive all or part of retirement benefits in exchange for receiving service-related disability. If that election is exercised, the nonmilitary spouse is not entitled to reimbursement or indemnification for the loss of payment of what would have been their share of the retirement benefits. This means that reasoning like that in Cassinelli is not appropriate.
Nathan W. Gabbard is a Certified Family Law Specialist, certified by the Board of Legal Specialization of the State Bar of California and practices exclusively family law in Santa Monica, California.
