Military pension division deal OK

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The Hampton Circuit Court has upheld the terms of a separation agreement under which a military veteran agreed to indemnify his former spouse for any losses to her share of his gross retired pay.

Judge Bonnie L. Jones found that the case didn’t run afoul of a U.S. Supreme Court prohibition against state courts ordering the indemnification of a divorced spouse for losses to retirement benefits caused by a veteran’s disability waiver.

“The Court did not issue an order requiring Mr. Ellis to indemnify Ms. Sutton-Ellis, but rather has enforced an agreed-upon contract that the parties had voluntarily entered into,” the judge explained.

The decision is Ellis v. Sutton-Ellis (VLW 022-8-053).

Veteran’s pension

Darrell Thomas Ellis and Talisha Danet Sutton-Ellis separated in April 2014 and signed a stipulation and separation agreement in May 2014.

A final divorce decree was entered in February 2020, which was incorporated into their earlier separation agreement that addressed how Darrell’s military retirement was to be divided.

In May 2020, the equitable distribution order was entered, granting 47.48% of Darrell’s military retirement pay to Talisha.

In the agreement, Darrell guaranteed that he wouldn’t defeat or reduce his former spouse’s share of his veteran’s pension, including by a waiver of retirement pay to receive disability benefits.

He also agreed to indemnify his ex-wife and hold her harmless from any losses if he breached his guarantee.

Enforced, not ordered

“It has been a longstanding notion that parties are free to contract for provisions that aid in determining how property and assets will be divided following a divorce,” Jones noted.

Because this case involved the indemnification of a divorced spouse for losses tied to a military pension, the judge looked to Howell v. Howell, a 2017 U.S. Supreme Court decision.

“The Court did not issue an order requiring Mr. Ellis to indemnify Ms. Sutton-Ellis, but rather has enforced an agreed-upon contract that the parties voluntarily entered into. A divorcing couple is free to negotiate and resolve all issues relating to their divorce.”

– Hampton Circuit Court Judge Bonnie L. Jones

In Howell, the justices precluded lower courts from ordering a veteran to indemnify a former spouse for a loss in his or her share of retirement pay caused by a waiver to receive service-related disability benefits.

But Jones said the instant case could be distinguished from Howell.

“The Court did not issue an order requiring Mr. Ellis to indemnify Ms. Sutton-Ellis, but rather has enforced an agreed-upon contract that the parties voluntarily entered into,” Jones pointed out. “A divorcing couple is free to negotiate and resolve all issues relating to their divorce.”

And if interpretation becomes a problem, rules of contract law will govern, the judge added.

“The Court in Howell precluded state courts from ordering a military service member to reimburse or indemnify the other, however, federal law does not preclude spouses from indemnifying one another in a negotiated settlement agreement,” Jones concluded.

Form over substance

Lawrence Diehl, emeritus counsel with Barnes & Diehl in Richmond, agreed with the outcome in Ellis. However, he lamented that it was erroneous according to the December 2021 holding from Yourko v. Yourko, a case he is currently appealing to the Supreme Court of Virginia.

“In Yourko, the Court of Appeals of Virginia made an overbroad reading of Howell to decide that an agreement to guarantee and indemnify an ex-spouse for a waiver of retirement pay was void ab initio,” he told Virginia Lawyers Weekly. “The court in Ellis elevated form over substance by sidestepping the issue of whether the parties’ agreement was even valid, and if Yourko stands, not only would Ellis be wrong, but thousands of military divorces could be affected.”

In addition to public policy concerns, Diehl was worried about unfair remedies available if similar indemnification agreements are overturned in light of Yourko, especially if a party didn’t reserve their right to seek the waived spousal support.

“I have negotiated similar agreements for servicemembers which have been standard for over 30 years,” he noted. “One party will often waive spousal support for a greater share of retirement benefits, which are paid even if the receiving party remarries, unlike spousal support.”

He offered some advice to practitioners.

“Parties who are facing this issue should ask the court to stay its decision until after Yourko’s appeal is decided so as to not create more bad law and to prevent courts from having to reconsider these decisions if the case is reversed,” he suggested.