The Supreme Court of the United States recently ruled on two cases that directly impact how veteran disability pay will now be divided in the divorce context: Howell v. Howell and Merrill v. Merrill (Petition for Review was granted in light of Howell and sent back to Arizona Supreme Court). Interestingly, both cases are from Arizona (and we had something to do with both of them).
The factual situations in Merrill and Howell are nearly identical. In both cases the veteran became divorced from their spouse. At the time of divorce, the divorce decrees awarded both spouses a certain percentage of the veterans’ military retirement pay. After a few years, both veterans became increasingly disable and decided to exchange a dollar-for-dollar amount of their retirement pay for disability pay. The advantage of doing so is that disability pay is tax free, whereas retirement pay is taxable.
When the veterans exchanged their retirement pay for disability pay, their former spouse’s retirement shares also decreased. For example, if at the time the veterans were divorced they were receiving $1,000 per month in retirement, and their spouses were receiving 50%, the veterans were receiving $500 per month and their spouses were receiving $500 per month. If, however, the veterans exchanged $800 of their retirement pay for disability pay, the veteran would end up with $900 per month ($800 in disability pay + 50% of the remaining $200 in retirement pay) and the spouses with $100 per month, or 50% of the remaining retirement after the exchange. Needless to say, the spouses were upset.
Eventually, the Arizona Supreme Court found that the veterans were not allowed to do this because the spouses had a vested right in the retirement pay, meaning they had relied on the pay for so long that the veterans were not allowed to change it. The Arizona Supreme Court further found that the veterans would have to make up for any amount of retirement pay they exchanged for disability pay through some other means (i.e., they would have to find other money to reimburse the spouses). The veterans fought on and took the case to the Supreme Court of the United States.
In a unanimous decision, the Supreme Court stated that the veterans were allowed to exchange their retirement pay dollar-for-dollar for more disability pay and there really isn’t anything the spouses could do about it. Specifically, the Supreme Court noted that their previous case, Mansell v. Mansell, 490 U. S. 581, held that only federal law can dictate how veterans’ disability pay may be divided in a divorce and that states were preempted from contradicting federal authority.
This is a simplistic look at the cases, but a summary nonetheless. If you have a question about veteran disability pay or retirement pay in the divorce context, contact the Berkshire Law Office today.