Virginia Lawyers Weekly VA Lawyers Weekly
The Court of Appeals erred when it ruled that “certain indemnification provisions in a property settlement agreement that [wife] entered into with [husband] violated federal law and, therefore, were void ab initio.”
Background
The parties agreed on a division of husband’s military pension. The circuit court entered a Military Pension Division Order (MPDO) that gave wife 30 percent of husband’s “disposable military retired pay.”
Paragraph 9 provided wife with a $1,292.70 monthly payment.
Further, if husband waived retirement pay for disability benefits, which would reduce wife’s share, husband “shall indemnify her by giving to her directly the amount by which her share or amount is reduced[.]”
Later, “the Defense Finance Accounting Service (‘DFAS’), computed Husband’s disposable retired pay to be only $844 per month.
“Per DFAS, the remainder of his retirement benefits were considered to be disability pay, which is not divisible under federal law. As a result, DFAS calculated Wife’s share of Husband’s disposable military retirement pay to be only $253.20 per month rather than $1,202.70.’”
Husband moved to reopen the divorce case. The circuit court granted the motion. Husband argued that the MPDO now required him to pay wife 140 percent of his “disposable retired pay in violation of federal law.”
The circuit court ruled that it lacked jurisdiction to modify the MPDO or to strike paragraph 9 despite husband’s arguments that the indemnity provision required “him to pay more than 50% of his disposable retired pay in violation of federal law.”
The Court of Appeals agreed that the circuit court lacked jurisdiction to modify the MPDO. “However, it went on to rule that federal law preempted Virginia law on questions involving the divisibility of military retirement benefits. …
“Relying on … Howell v. Howell, 581 U.S. 214 (2017), the Court of Appeals determined that, ‘indemnification or reimbursement to compensate a former spouse for the waived military retirement pay was in violation of federal law.’”
Wife appealed.
Issue on appeal
“Wife contends that the holding of Howell was limited to preventing courts from requiring indemnification. … We agree.”
The issue “is whether the United States Supreme Court’s interpretation of the Uniformed Services Former Spouses’ Protection Act (‘USFSPA’) … in Howell invalidates the indemnification provisions of an agreement between the parties.”
Legal standards
In McCarty v. McCarty, 453 U.S. 210, 223 (1981), the Court “ruled that Congress did not intend to allow courts to divide military retirement pay as part of judicially divisible property in a divorce proceeding. …
“In response to McCarty, Congress enacted the USFSPA, which authorized courts to treat veterans’ ‘disposable retired pay’ as judicially divisible property in divorce proceedings. …
Mansell v. Mansell, 490 U.S. 581, 585 (1989), “addressed the effect that the USFSPA had upon its decision in McCarty.
“Its analysis began by noting that, because ‘the application of state community property law to military retirement pay’ was ‘completely pre-empted’ by pre-existing federal law, the USFSPA acted as ‘an affirmative grant of authority giving the States the power to treat military retirement pay as community property.’” …
The McCarty Court “specifically noted ‘that the [USFSPA] does not grant state courts the power to treat as property divisible upon divorce military retirement pay that has been waived to receive veterans’ disability benefits.’ …
“In other words, the USFSPA was only a partial rejection of McCarty; a veteran’s disability benefits remained a personal entitlement.”
After McCarty, “some courts opted to require that veterans reimburse or indemnify their former spouse if the veteran opted to waive military retirement pay for disability pay.”
In Howell, the Court “rejected this approach … ruling that a state court could not ‘subsequently increase, pro rata, the amount the divorced spouse receives each month from the veteran’s retirement pay in order to indemnify the divorced spouse for the loss caused by the veteran’s waiver.’”
It explained that an indemnification order “was no different than an order that divided the disability pay.”
Importantly “neither Mansell nor Howell involved a property settlement agreement that contained an indemnification provision.” Further, “neither opinion … address[es] the enforceability of such a provision.
“Mansell simply proscribes state courts from ‘treating military retirement pay that had been waived to receive disability benefits as community property.’ …
“Howell… only makes clear that state courts cannot order a veteran who elects to waive retirement pay for disability pay to indemnify a former spouse.”
Discussion
The circuit court did not err “by treating Husband’s disability pay as marital property for purposes of equitable distribution in violation of Mansell because the present case is limited to the parties’ contractual obligations under the MPDO.
“Howell is similarly not implicated, as nothing in the record indicates that the circuit court sought to ‘circumvent’ the USFSPA by ordering that Husband indemnify Wife for the reduction in disposable retired pay; rather, the indemnification provision was undisputedly part of the MPDO. …
“[T]he remaining question is whether the USFSPA bars a former service member from dividing his or her total military retirement pay via contract. …
“[F]ederal law does not prohibit a veteran from using military disability pay in any manner he or she sees fit, provided the money is paid directly to the veteran first; indeed, it expressly permits such usage. …
“Moreover, the fact that the contract is between a husband and wife does not change the analysis. The Court of Appeals adopted this approach in Owen v. Owen, 14 Va. App. 623 (1992).
In this case, “[a]fter determining that Howell barred servicemembers from making ‘contracts, “guarantees,” or “indemnification” promises to former spouses,” the Court of Appeals expressly overruled Owen and its progeny. … This was error. …
“[W]e expressly adopt the holding of the Court of Appeals in Owen that, with regard to the division of military retirement benefits, ‘federal law does not prevent a husband and wife from entering into an agreement to provide a set level of payments, the amount of which is determined by considering disability benefits as well as retirement benefits.’”
Further, Virginia courts can enforce such agreements.
Reversed and final judgment.
Yourko v. Yourko, Record No. 220039; (Powell) March 30, 2023. From the Court of Appeals of Virginia. Heather Larson Pedersen (Kyle J. Burcham; Pedersen Law, on brief), for appellant. Charles E. Haden on brief, for appellee. Amicus Curiae: Virginia Chapter of the American Academy of Matrimonial Lawyers (Cassandra M. Chin; Lawrence D. Diehl; Nichols Zauzig; Barnes & Diehl, on brief), in support of appellant. Amicus Curiae: American Academy of Matrimonial Lawyers (Susan M. Butler; ShounBach, on brief), in support of appellant. VLW 023-6-007, 11 pp.
