"Phased Retirement" will complicate divorce pension-division, alimony; regulations issued

Maryland family law specialist Hadrian Hatfield notes that the new "Phased Reitrement" offered to federal employees will change now we divide their pensions in divorce cases, and may also affect alimony; but fortunately the government has anticipated this and its new regulations on the subject address how it affects family law, including both new pension-divisions and pased-retirees who already have court orders prospectively dividing their pensions.


Social Security keeps divorcées, widows in the dark about benefits via spouse's earnings - PBS

"The Social Security Administration won't let divorcées have access to their ex spouses' earnings records. Nor will it let widows and widowers have access to their late spouses' earnings records.", according to Larry Kotlikoff, quoted on PBS's "The Newshour". Despite the fact that ex's earnings can determine how much one can expect to receive in social security benefits, and are the key factor in choosing whether to receive benefits based on one's own earnings or those of a particular spouse or former spouse.

How Social Security keeps divorcées and widows in the dark about their benefits

 


Women gain in economic power, but many fear they'll be bag ladies

"Six in 10 women describe themselves as the primary breadwinners in their households, and 54% manage the family finances, according to the poll by Allianz Life Insurance Company of North America. Even so, 49% fear becoming a bag lady ..." This includes 27% of women earning more than $200,000 a year"and 43% of married women.

More: "Almost half of American women fear becoming bag ladies, study says" - By Walter Hamilton, L.A. Times

 


Divorced feds, vets must now change beneficiaries manually – Va. court

Divorced federal employees, retirees, servicemembers, and veterans need to check their beneficiary designations in the wake of a recently overturned Virginia law.

The Virginia Supreme Court has overturned as unconstitutional a long-standing Virginia law that automatically changed beneficiary designations for life insurance policies after divorce (Va. Code Sec. 20-111.1). The Court’s decision applies to life insurance benefits for federal employees, veterans and military personnel.

The reason the law is unconstitutional is the doctrine of federal preemption of state laws under the United States Constitution’s Supremacy Clause. Also, the federal government has “sovereign immunity”, so that a state court can only make an order affecting federal benefits if Congress has specifically made a law allowing the states to do something with that benefit in a certain prescribed way. For federal and military pension Survivor Benefits, Congress has authorized states to do this in divorces, but when it comes to insurance, it has not. In fact, the federal statute creating and governing Federal Employees’ Group Life Insurance (FEGLI), in its section on designated beneficiaries, has a provision expressly preempting state legislation that conflicts with it.

The Virginia statute’s drafters anticipated the possibility of federal preemption of it, and so the statute specifically provides that if it is inoperable as to a particular kind of insurance because of federal preemption of the state statute, then the same net result between dueling insurance beneficiaries shall be achieved by using a “constructive trust” on the insurance proceeds, so that the person named as beneficiary must turn around and pay them to the person who otherwise would be the beneficiary. If you think that doesn’t exactly pass the smell test, and the state seems to be deliberately nullifying and undoing the actions of the federal government, the Virginia Supreme Court agrees with you. It points out, however, that it is joining a small minority position on this question: most states’ courts that have addressed the issue think such statutes are just fine. [NEWS FLASH: The latest is Hardy v. Hardy from Indiana's Supreme Court, March 14, 2012.]

The Virginia statute also applies to any kind of “death benefit”, such as designated beneficiaries of accumulated retirement contributions for employees and servicemembers who die before retirement. The court decision does not say anything about those other kinds of benefits. But federal employees and servicemembers would be wise to check and correct those beneficiary designations, too.

Two dissenting justices argued that the provisions of the FEGLI Act were designed to protect the federal government from getting entangled in disputes between rival beneficiaries, and NOT for the purpose of actually giving more benefits to divorced spouses instead of new spouses; and that therefore Virginia’s “preemption workaround” provision was perfectly constitutional, because it makes the divorced widows pay the benefits to the new spouses while keeping the federal government uninvolved.

On a practical level, unfortunately, neither way of deciding this issue is workable, fair or convenient for everybody. The Virginia statute is one of those laws that is designed to do for people by default what most people would choose to do if they attended to their affairs – to remove a divorced spouse from being the beneficiary except in cases where the separation agreement or divorce decree specifically says that they will stay the beneficiary. Many of our clients have rightly been told over the years that the law does this automatically, and have probably relied on it. On the other hand, many servicemembers, veterans, and federal employees have been told by the federal government over the years that they must change their beneficiary designation upon divorce if they want their insurance beneficiary to change. We have had people come to us whose deceased exes deliberately chose to do nothing about the beneficiary designation because they logically inferred, from all those federal warnings, that the beneficiary designation would change only if they changed it, and they wanted the ex-spouse to stay covered. So this is a case where either result would predictably lead to some injustice for quite a few people. But this is certainly the right result constitutionally.

And what we need to do about it is very clear: all federal employees, retirees, servicemembers or veterans who ever got divorced in Virginia or now live in Virginia should make sure that their beneficiary designations reflect their wishes, or their obligations under divorce decrees or agreements.

For more of the legal details see Richard Crouch’s case note about this case. 


New form required for divorced spouses to get military pension survivor benefit

Military family law guru Mark Sullivan of Raleigh tipped me off about this. This new form will become the only way to elect military survivor benefit coverage in a divorce. Its use is mandatory after Sept. 30, 2008 but it can be used even before that. The form, like the informal letters that were used for this in the past, is subject to a one-year deadline, which Mark describes as follows:

The application for SBP coverage is governed by two deadlines.  If the
member/retiree applies for coverage, the deadline is one year from the date of divorce.  If the spouse/former spouse requests coverage, she must send in her court order requiring coverage within one year of the date of the order. The latter is called the "deemed election" process.

Link: Forms Catalog Document - DD Form2656-10 :-: DODDEP :-: Survivor Benefit Plan (SBP)/Reserve Component (RC) SBP Request for Deemed Election.