The U.S Supreme Court decided in Howell v. Howell, May 15, 2017, that any kind of disability pay could not be divided, directly or indirectly, even where the servicemember, 13 years after retirement and 14 years after the divorce, took regular retired pay that had already been divided by a court order, and converted 20% of it to disability pay when retiring with a 20% disability rating.
That reflected existing law, but it also clarified that a state court could not order the retiree to compensate or indemnify the former spouse for this change. It disagreed with most state courts that had considered the question, and with the U.S. Solicitor General.
This conversion of a percentage of retired pay is a “V.A. Waiver.” It is required when applying for partial disabled pay with less than a 50% disability rating.
However, the Howells did not have any provision for such reimbursement in their PSA. The outcome could well have been different if they did.
Possible remedies:
Virginia has a statute allowing later rewording of a pension-division order “only for the purpose of establishing or maintaining the order as a qualified domestic relations order or to revise or conform its terms so as to effectuate the expressed intent of the order.” Code § 20-107.3 K 4. But it is hard to see how the Howell decision leaves any room for that which Virginia’s appellate courts would try to use.
In some other states, this kind of change has been used as grounds for modifying alimony. In re Marriage of Jennings, 138 Wash. 2d 612, 980 P.2d 1248 (1999); Longanecker v. Longanecker, 782 So. 2d 406 (Fla. Dist. Ct. App. 2001).
But state courts have also ruled that an alimony modification cannot simply be a dollar-for-dollar reallocation of the retired pay that the disability conversion has taken away. In re Marriage of Cassinelli, 4 Cal. App. 5th 1285, 210 Cal. Rptr. 3d 311 (Calif. Ct. App. 2016); In re Marriage of Perkins v. Perkins, 107 Wn. App. 313, 26 P.3d 989 (Wash. Ct. App. 2001).
Both kinds of state-court holdings make sense in light of Virginia law and the purpose of spousal support. A spousal support award cannot be used for property-division, and would not probably not be a modification of an equitable distribution order within the scope of Va. Code § 20-107.3 K 4, even though it usually would be modifying literally the same order (since alimony and retired-pay division are part of the divorce decree even when there is a separate retired-pay order to send to DFAS). But alimony modification – as long as jurisdiction is reserved for it – is properly based on changes in overall income, and a V.A. Waiver could produce enough of a change in the former spouse’s income that spousal support modification could be warranted. But the modification would look at all income and expenses at the time.
What to do:
In trials and in settlements, reserve jurisdiction to modify or award spousal support, even if it is limited to a V.A. Waiver situation. That would make sense where retired pay is a major expected part of the former spouse’s income, and is effectively a substitute for alimony.
Keep using indemnification/reimbursement clauses in PSAs.