Who’s to Blame?

June 2, 2015 § Leave a comment

This is from a PSA entered into between Joe Bryant and his then-wife, Adella Jones:

[Adella] will receive as property settlement[] fifty percent (50%) of [Joe’s] disposable retirement from the Unites States Marine Corps/Army National Guard and fifty percent [50%] of [Joe’s] disposable retirement from the Veterans Administration which will be paid directly to [Adella] by the United States Marine Corps/Army National Guard and the Veterans Administration.

Joe retired from the VA on November 1, 2008, and from the military on June 30, 2010, and began receiving 100% of his retirement from both. He never paid any of the amounts received to Adella.

In October, 2010, Adella submitted her application for her retirement benefits, unaware whether Joe had retired, and she began receiving her one-half in January, 2011.

After Joe had filed a futile modification action, and she learned that he had begun receiving 100% of his retirement benefits for a time before she received any, Adella filed a contempt action against Joe.

Following a trial, the chancellor ruled that it was the military, and not Joe, that was required to make the payments, and, therefore, that he was not in contempt. The judge did award Adella a judgment against Joe for one-half of the retirement he had received in the interim in the amount of $46,433. Adella appealed.

On April 7, 2015, the COA affirmed in Jones v. Bryant. Judge Carlton’s for a unanimous court explained:

¶15. In the July 2, 2013 order granting Adella’s motion to dismiss [Joe’s pleading for modification], the chancellor found that “after reviewing the property settlement agreement, . . . the provisions regarding military retirement are clear and unambiguous and should not be modified.” The chancellor later entered a final judgment on August 8, 2013, further holding that “the property settlement agreement requires Adella’s portion of the retirement to be paid by the United States Marine Corps/Army National Guard and the Veterans Administration rather than by Joe,” and as a result, “Joe is not in willful and contumacious contempt of the agreement.” We find Adella presented no evidence to support her claims that Joe willfully or intentionally violated any court order. The record reflects that the plain language of the property-settlement agreement in this case provides that Adella’s portion of Joe’s military retirement pay would be paid directly to her by the Marine Corps/Army National Guard and Veterans Administration.

¶16. The Uniformed Services Former Spouses’ Protection Act (USFSPA) provides former spouses, who are awarded a portion of military retirement pay in a divorce, with “a mechanism to enforce retired pay as property award by direct payments from the member’s retired pay.” See Defense Finance and Accounting Service, Frequently Asked Questions, http://www.dfas.mil/garnishment/usfspa/faqs.html; 10 U.S.C. § 1408 (2012). [Footnote omitted] The former spouse must complete and provide the required applications, relevant court order, and supporting documentation, as required by statute and regulations, to the designated Defense Finance and Accounting Service, and the language in the property award must also comply. [Footnote omitted]

¶17. After our review of the record, we find substantial evidence exists in the record to support the chancellor’s final judgment determining Joe was not in willful and contumacious contempt of the property-settlement agreement or any other court order. Accordingly, we also find no error in the chancellor’s denial of attorney’s fees to Adella. See Henderson v. Henderson, 952 So. 2d 273, 280 (¶23) (Miss. Ct. App. 2006).

How can you avoid a similar result for your client?

  • Any duty that you want to be enforceable later in favor of your client needs to spelled out. Here, it would have been simple to spell out that Joe had the duty to notify Adella in writing within a specified time of his retirement. For example, he could have been required to send her a copy of his application for benefits simultaneously with its submission to the agency.
  • Whenever a contract requires third-party payments on behalf of A, specify that A will be responsible to make the agreed payments himself to B until the third party begins making them. For instance, “Joe will pay one-half of any retirement benefits received by him directly to Adella until such time as the [agency] begins withholding her 50% portion” or words to that effect.
  • You might want to read that Department of Defense material and incorporate some of it verbatim in your PSA. Agencies understand their own jargon better than yours or the court’s.
  • Is it in your client’s interest to spell out whether the retirement is being paid as property division on the one hand, or as alimony on the other? It might be; you need to consider it.
  • Know and understand how the retirement system works. Read the interpretive material. Study the website. Draft your PSA from a position of knowledge, not guesswork.

 

A Common Sense Approach to Dividing Retirement Accounts

February 4, 2014 § Leave a comment

When it comes to dividing retirement accounts in divorce, the case law and arguments of counsel can be all over the ballpark. Do you divide the accounts as you would cash money, by percentages or assigned sums? Or do you order a division of the stream of income as you would alimony?

How and whether a military retirement account should be divided was the issue in the COA case of King v. King, decided January 14, 2014. I believe Judge Fair’s specially concurring opinion sets out the proper approach that chancellors should use in determining the nature of, and how to divide, retirement accounts. Here it is verbatim:

¶12. The issue dividing the majority and dissent is whether there was a Hemsley-Ferguson-Armstrong compliant treatment of military retirement benefits belonging to Joseph. Those benefits were being paid to him monthly, having matured from a dormant asset into a stream of income. For that reason I concur with the majority in recognizing that the treatment of such benefits by the chancellor was in accord with the intent of those three cases and their progeny.

¶13. The Supreme Court of Mississippi handed down Hemsley and Ferguson in July 1994, providing factors for consideration by chancellors in establishing and equitably dividing marital assets. In 1993, Armstrong had set out similar factor guidance for determining alimony. Later rulings have emphasized that these three cases govern financial relations – past, present, and future – of divorcing spouses, and should be considered together, with one receding in effect when another increases.

¶14. The first case recognizing the interdependency of those three “factor discussion” cases was handed down five months after Hemsley and Ferguson. In Johnson v. Johnson, 650 So.2d 1281 (Miss. 1994), the supreme court introduced the concept of remedying, through alimony, a “deficit” in income and lifestyles between parties after equitable division of their marital property and evaluation of their separate property, if any. A chancellor is required to first determine income from employment and from marital property and separate property. Then, if a deficit results, then the chancellor should award alimony in one or more of its three common forms (lump sum, rehabilitative, and periodic) to address the deficit. Overall fairness, equity, and especially finality undergird such treatment, with an emphasis in recent cases placed on avoidance, if at all possible, of continuing financial relationships between spouses (other than child support).

¶15. The Uniformed Services Former Spouses’ Protection Act (USFSPA), cited in both the majority and the dissent, has been compared on occasion by the supreme court to the 1986 COBRA provisions under which a chancellor may divide marital ERISA qualified retirement plans (Tamra’s 401(k), for instance) without tax consequence. However, Joseph’s military retirement, like Tamra’s PERS retirement, and all other government retirement programs, are exempt from the COBRA Act and its “Qualified Domestic Relations Orders” (QDRO). Military retirement has its own requirements for benefit distribution in divorce cases.

¶16. USFSPA allows only income streams from military retirement benefits to be awarded, prohibiting lump sum apportionment and limiting the total of all alimony and child support to 50% of the service member’s regular retirement income stream. Thus, the maximum benefit possible for Tamra under those restrictions is $267 monthly, which is half of Joseph’s $1,144 less $305 in agreed child support. Apportioning that amount to Tamra as payment, in installments, for her share of a property interest in Joseph’s retirement would raise her gross $4,100 per month to $4,367 and reduce Joseph’s to $1,330, further increasing the deficit that favors an award of alimony to Joseph.

¶17. We should formally recognize the difference between an ERISA plan and military retirement plans, and perhaps all retirement accounts actively paying monthly benefits which cannot be altered. For example, PERS contributions on early termination of employment, and 401(k) and IRA contributions at any time, may be withdrawn by a spouse at the time of divorce and are therefore still divisible, some through a QDRO without loss of tax-deferred status. On the other hand, a vested income stream that has commenced in a government plan is not, as the majority recognizes, divisible or payable in lump sum, and should be considered under the Armstrong alimony prong only.

¶18. Such treatment of an existing retirement income stream would be in accord with the view our supreme court takes of “good will” in business valuations, likewise not a divisible asset readily convertible to cash but rather a source of monthly income to be considered in alimony determination only.

In other words, when the retirement account is not divisible by law, and has been converted to a stream of income, it should be treated as income, and not as a divisible asset convertible to cash.

Annuities also come to mind when enumerating the types of assets that such an approach would cover.

I think Judge Fair is right on target with this.

The Cap on Division of Military Retirement — or not

December 17, 2013 § Leave a comment

Henry and Tracey Stout found themselves in a divorce proceeding after twenty-five years of marriage. After the entered into a consent, the chancellor divided the marital estate, awarding Tracey, among other things, 64.75% of Henry’s military retirement.

Henry appealed, arguing that Tracey was entitled to no more than 50% of his military retirement, based on the specific limitation of 10 USC § 1408(e), which states that: “The total amount of the disposable retired pay of a member payable under all court orders pursuant to section (c) may not exceed 50% of such disposable retired pay.”

The COA addressed Henry’s appeal in the case of Stout v. Stout, handed down December 10, 2013. Judge Roberts, for the majority, started his analysis by looking to other jurisdictions:

… This issue is a matter of first impression in Mississippi; therefore, it is prudent to consult the interpretations of this issue from other jurisdictions. In a slip opinion in Gonzalez v. Gonzalez, No. M2008-07143-COA-R3-CV, 2011 WL 221888, at *5 (Tenn. Ct. App. 2011), the Tennessee Court of Appeals stated:

It appears that the United States military does not view § 1408(e)(1) as a limit. The Defense Finance and Accounting Service observes that “the amount of a former spouse’s award is entirely a matter of state law.” DIVIDING MILITARY RETIRED PAY 6 (2006), http://www.dfas.mil/militarypay/garnishment/Speech5.pdf; see also UNIFORMED SERVICES FORMER SPOUSE’S PROTECTION ACT 2–3 (2010), http://www.redstone.army.mil/legal/data/1–usfspa.pdf (“If a state court awarded you 60% of your former spouse’s retired pay and you qualify under this statute to get direct pay, then you would collect 50% through the Finance Center and your former spouse would be responsible for providing the other 10% to you.”) DOMESTIC RELATIONS FROM A MILITARY PERSPECTIVE; FREQUENTLY ASKED QUESTIONS [http://www.cnic.navy.mil/navycni/groups/public/documents/document/cnicp_ a134503.pdf] (“The 50% maximum of DRP [disposable retired pay] is a limit on how much retired pay can be paid directly, but it is not a limit on how much a court can award.”).

Although not an exhaustive list, courts in Minnesota, Delaware, Texas, Alabama, Kansas, Washington, Maryland, and Iowa also take this view of the statute. [Footnote omitted] However, several states do consider there to be a 50% limit. [Footnote omitted] The majority view is that the statute is not an absolute cap, but rather a cap on what the government can pay directly to a spouse or former spouse. We find the majority view to be persuasive; therefore, the chancellor did not err in awarding Tracey more than 50% of Henry’s military retirement benefits. This issue is also without merit.

I find it interesting that the COA wound up dealing with this issue. If this is, as Judge Roberts found, an issue of first impression in Mississippi, aren’t those kinds of cases supposed to be the province of the MSSC?

Until the MSSC addresses it, then, we will be among the states holding that the 50% limit is a limit on what the government DFAS can be ordered to withhold, not a limit on what can be awarded by the court.

This is an important case for you to know and understand if you ever deal with military retirement, as do many of us in areas of Mississippi with military installations and military retirees.

Another aspect of this case bearing mention is the fact that the chancellor awarded a percentage of the military retirement as a part of equitable distribution, but did not place a value on the total of the benefit received. Henry charged that this was error. Judge Roberts addressed it this way:

¶17. Henry next argues that the chancellor erred in not determining a specific monetary value of his military retirement and assigning a percentage of that value to Tracey’s estate. Had the chancellor added in this value, Henry claims Tracey’s estate would have been much greater and alimony could have been avoided. Without that value, according to Henry, there is ambiguity in the equitable distribution of the marital estate. Military retirement benefits are considered personal property, and as such, are subject to equitable division in a divorce proceeding. Hemsley v. Hemsley, 639 So. 2d 909, 914 (Miss. 1994). The chancellor placed a monthly value of $1,770.53 per month, but did not determine a lump-sum value. Henry cites to no authority that a chancellor is required to determine a lump-sum value of military retirement benefits. Though not at issue in other cases, there is case law describing a chancellor solely determining the monthly value of the retirement benefits and not a lump sum. However, there is also case law that shows a chancellor actually put a lump monetary value on the retirement benefits. Neither line of cases instructs that one valuation is required or more appropriate than the other. We cannot find that the chancellor erred in not determining a lump-sum amount of the military retirement benefits awarded to Tracey. We also note that the chancellor did take into account the monthly amount Tracey would receive when she determined whether Tracey was entitled to alimony and if so, in what amount.   

I wonder whether the discrepancy in case law cited by Judge Roberts is due to the fact that military retirement can be divided in equitable distribution or ordered to be paid as alimony, in the discretion of the chancellor. The cases referred to are not cited, so we do not know whether they are equitable division or alimony cases. Clearly, if paid as alimony its total valuation would be beside the point. As equitable distribution, I’m not so sure, because the value of the assets divided must be taken into account. In either case, however, as Judge Roberts pointed out, equitable division does not mean an equal division. The chancellor did an exemplary job limning out Tracey’s need for financial support post-equitable-division, so it is unlikely that placing a value on the benefits received in this case would have changed the outcome.

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