Now or Later: Dividing military pensions upon divorce

Under North Carolina law, the marital portion of a pension is sometimes calculated in the same way as the calculation of the marital portion of a military pension.  These calculations involve simple math.  However, in the case of a military pension, there are multiple options available to calculate the marital portion of the military pension, depending on whether it is more favorable to choose a deferred or present division of the pension.  The selection of an option necessitates the use of a professional to weigh the factors.

 

If you discover that you missed the initial filing deadline, North Carolina has a “Savings Statute” that allows the defendant to claim equitable distribution subsequent to the divorce under certain circumstances. North Carolina’s statute allows a late claim for equitable distribution if the defendant was served by publication. A late claim is also allowed when the divorce was granted in another jurisdiction.

The Uniformed Services Former Spouses’ Protection Act (USFSPA) was passed in 1982 to make military pensions subject to division by state courts in divorce and property division proceedings.  All of the states now allow the division of military pensions as marital or community property.  North Carolina enacted N.C. Gen. Stat. 50-20(b)(1) (2001) so that marital property includes vested and nonvested military pensions under the USFSPA.  Furthermore, certain amendments made by Congress to parts of the U.S. Code dealing with Reserve retirement and benefits imply that Congress intended the Act to cover Guard and Reserve retirement also.

The North Carolina Court of Appeals case of Draper v. Draper, 159 N.C. App. 465, 583 S.E. 2d 426 (N.C. App. 2003) involved the division of military retirement benefits in equitable distribution. The plaintiff, Ms. Draper, requested an interim distribution of the defendant, Mr. Draper’s, retirement benefits. The defendant was married to the plaintiff during his entire service as a member of the United States Air Force.  At the trial court level, the plaintiff was unsuccessful in getting any of the Defendant’s retirement benefits because she did not offer evidence of the date of separation value or the present value of the defendant’s benefits.  On appeal, the Court of Appeals reversed the trial court on the issue of equitable distribution. The Court remanded the case to the trial court to value under the deferred distribution method and equitably distribute the defendant’s military retirement benefits, except for defendant’s disability benefits. The Court explained that the North Carolina trial courts are not limited to the present value method, as long as the court values the retirement benefits as of the date of separation.

North Carolina calculation

Equitable distribution and pension issues are addressed in N.C. Gen. Stat. 50-20.1 in which it provides a formula to value the marital portion of the benefits:

Years of Marriage that Coincide with Employment

Year of Employment

An example of division in a hypothetical case may help to illustrate how it works.  Assume that the couple has been married for 5 years and that, for all 5 years, she was employed by the company, government or organization providing the pension.

Also assume that her pay with 20 years of employment is $4,800 per month, and that she can retire after 20 years of service with 50% of her base pay.  Thus, the monthly retired pay of the employee spouse is $2,400.

$2,400 × 5 years marital pension service = $600 (marital part of pension)

20 years total pension service

Military Calculation

Deferred Division: The marital fraction is calculated as follows:

Years of marital pension service =  M

Years of total pension service            T

The numerator (M) represents the years of marital pension service, and the denominator (T) represents the total number of years of creditable service that the service member will perform.

An example of deferred division in a hypothetical case may help to illustrate how it works.  Assume that a service member has been married for 5 years and that, for all 5 years, he was on active duty in the United States Marine Corps.

Also assume that his active duty pay with 20 years of service is $4,800 per month, and that he can retire after 20 years of service with 50% of his base pay.  Thus, the monthly retired pay of the service member is $2,400.

$2,400 × 5 years marital pension service =  $600 (marital part of pension)

20 years total pension service

Present Value Offset: In addition to the future division of retired pay, all states recognize a second method of pension division called a “present value offset.” This represents the present value of a series of money payments over the course of the service member’s life. The money payments are their retired pay, present value is the amount used so that the service member keeps the entire pension. The parties are left with a complete division of this asset.

How is present value calculated? There are several options available. Sometimes an expert is needed for trial. If settlement is possible, a mail order pension evaluation can be done by a party or parties, approximately $300–$500.

There is also a second method of determining present value, and this one makes no assumptions regarding interest rates, life expectancies or inflation.  It involves pricing an annuity that will yield a monthly payment equal to the pension. You and your attorney can seek out a professional to create a proposed annuity that might provide a better outcome.

North Carolina allows for several options to handle a military pension. Make sure you and your attorney consider all of the options.

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Source: see “Silent Partner”, Military Pension Division – The Spouse’s Strategy