Divorce and the Military: Things to Consider When it Comes to Your Marital Settlement Agreement and Disability Compensation

If you are a current or retired member of the armed services and are considering a divorce or are divorced already, there are important considerations to keep in mind relating to your Marital Settlement Agreement and disability compensation.

Upon retirement from the military, many members of the armed services are classified as disabled. Retirees may receive disability payments from the U.S. Department of Veterans Affairs (VA) based on their assessed percentage of disability and whether the disability is related to the retiree’s service or combat.

Effect of Disability Payments on Military Pensions

One form of VA disability payment is Concurrent Retirement and Disability Pay (CRDP). These are disability payments from the VA to the retiree while the retiree is also receiving military pension benefits from Defense Finance and Accounting Services (DFAS). However, if a retiree is assessed to have less than 50% disability and has fewer than 20 years of service, among other factors, then the military pension the retiree receives from DFAS will be reduced, dollar-for-dollar, by the amount the retiree receives from the VA.

Another form of disability payment is Combat Related Special Compensation (CRSC), which is compensation for combat-related disabilities. A retiree must apply for CRSC (versus automatic enrollment in CRDP upon eligibility). If a retiree receives CRSC disability payments, the armed services could convert the retiree’s entire military pension into disability payments, which are tax-free. While these forms of disability payments are a significant benefit to the retiree, they can have significant implications in his or her divorce.

What Does This Mean for Me and My Divorce?

The U.S. Supreme Court determined that state courts can divide as marital property only a military retiree’s “disposable retirement pay,” which does not include disability payments.

The state courts cannot treat military pay that is offset to receive veterans’ disability benefits as marital property. However, Maryland appellate courts have carved out important distinctions from federal law if a retiree and his/her spouse prior to their divorce enter into a Marital Settlement Agreement (“MSA”), which provides for the payment and distribution of military pension benefits to the ex-spouse.

Maryland courts will consider “retirement benefits” in an MSA to include disability benefits “unless they are expressly excluded.” If the disability benefits are not expressly excluded, the benefits are subject to equitable distribution under contract law.

If a retiree accepts monthly disability payments that reduce his/her monthly military pension payments, thereby reducing the amount which the ex-spouse receives per the MSA and denying the ex-spouse his/her share of the retirement benefits, Maryland courts have found the retiree liable for damages to the ex-spouse under contract law. The court will order the retiree to pay the ex-spouse the amount of money by which the ex-spouse’s portion of the military pension is reduced due to the retiree’s receipt of disability payments.

If the retiree receives a lump sum disability payment in lieu of some or all of the retiree’s military pension, the retiree must pay the exspouse the money the ex-spouse would have otherwise received from the military pension, as if it were a monthly reduction of benefits. 

Why can Maryland courts order a retiree who receives disability compensation to pay his/her ex-spouse money if federal law says this compensation cannot be divided? According to Maryland case law, the payments the retiree receives become part of his/her general assets from which the retiree can pay the ex-spouse.

Therefore, the court is dividing the “general assets” of the retiree, not the disability payments. If you are obtaining a divorce in Maryland, pay close attention when your divorce attorney drafts your Marital Separation Agreement because your disability compensation from the VA might not be as protected as you think.