High court reinstates order dividing military pension

The Supreme Court of Virginia has reinstated a circuit court’s decision to dismiss a motion to amend a military pension division order, or MPDO.

The decision reverses a decision from the Court of Appeals of Virginia, which held that federal law preempted Virginia law on issues involving the division of military retirement benefits.

“The record here establishes that the parties divided Husband’s military retirement pay as part of a negotiated property settlement agreement, i.e., the MPDO,” Justice Cleo E. Powell wrote. “As a property settlement agreement, the MPDO is a contract under Virginia law and must be treated accordingly.”

Chief Justice S. Bernard Goodwyn, Justices D. Arthur Kelsey, Stephen R. McCullough, Teresa M. Chafin and Thomas P. Mann, and Senior Justice LeRoy F. Millette Jr. joined Powell’s opinion in Yourko v. Yourko (VLW 023-6-007).

Military retirement pay

When Lee Ann B. Yourko and Michael B. Yourko divorced, they negotiated an agreement about the division of Michael’s military retirement pay.

In the final divorce decree, the circuit court entered an MPDO, which included terms that Lee Ann “was entitled to 30% of Husband’s ‘disposable military retirement pay.’”

Specifically, Paragraph 9 of the MPDO stated that “[t]he parties have agreed upon the level of payments to [Wife] to guarantee income to her, based upon military retired pay with a deduction for disability compensation, resulting in [Wife’s] share equaling $1,202.70 per month.”

The Defense Finance Accounting Service computed Michael’s disposable retirement pay to be $844 per month, with the remainder considered disability pay. As such, the DFAS calculated Lee Ann’s share of the disposable military retirement pay to be $253.20 per month, nearly $1,000 less than the amount listed in the MPDO.

Michael moved to amend the MPDO, claiming the parties erred in calculations. He sought to have Paragraph 9 struck as void ad initio; the fact that he would have to pay more than 50% of his disposable retired pay was a violation of federal law, he argued.

The circuit court dismissed Michael’s motion, saying it lacked the authority to amend the MPDO because more than 21 days had passed since the order was entered, that the mistake was a “mutual mistake of fact” and not a clerical error, and that the MPDO “was an agreement” with regard to the amount Lee Ann was going to get from the military retirement.

Michael appealed and the Court of Appeals of Virginia reversed the circuit court in a published opinion. The appellate court agreed with much of the circuit court’s rationale, but reversed on the basis that federal law — namely the U.S. Supreme Court’s Howell v. Howell decision — preempted Virginia law on the issue.

“Indemnification or reimbursement to compensate a former spouse for the waived military retirement pay was in violation of federal law,” the Court of Appeals ruled.

This time, Lee Ann appealed.

Reinstatement

“The primary question raised in Wife’s appeal is whether the United States Supreme Court’s interpretation of the Uniformed Services Former Spouses’ Protection Act, 10 U.S.C. § 1408, in Howell invalidates the indemnification provisions of an agreement between the parties,” Powell wrote, adding that the case “presents a question of law which we review de novo.”

The U.S. Supreme Court held in 1981’s McCarty v. McCarty decision that Congress did not intend for courts to divide military retirement pay as a part of judicially divisible property in divorces. That led to the passage of the Uniformed Services Former Spouses’ Protection Act, or USFSPA, which permitted courts to treat veterans’ “disposable retirement pay” as judicially divisible.

In a later ruling, the country’s high court further clarified that the USFSPA was “a partial rejection of McCarty,” noting that a veteran’s disability benefits remained a personal entitlement.

However, Powell pointed out that none of the referenced cases involved a property settlement agreement containing an indemnification provision, which is what happened here.

“[I]t cannon be said that the circuit court erred by treating Husband’s disability pay as marital property for purposes of equitable distribution in violation of Mansell [v. Mansell] because the present case is limited to the parties’ contractual obligations under the MPDO,” Powell wrote.

Powell then turned to whether the USDSPA bars retired servicemembers from dividing their total military retirement pay by way of contract.

Noting that the federal government has never “placed any limits on how a veteran can use this personal entitlement once it has been received,” the justice found that federal law does not prevent this if the money is paid to the veteran first.

Powell also referenced a 1992 Court of Appeals decision to affirm the ruling in Owen v. Owen. There, a husband and wife entered into a property settlement agreement where the husband agreed to pay the wife a set amount of his military retirement.

As in the present case, the parties in Owen also agreed to “take no action to defeat his wife’s right to share in these benefits.”

“[T]he Court of Appeals expressly overruled Owen and its progeny. This was error,” Powell wrote.

“We 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,” she concluded.

Attorney comments

Longtime Richmond family law attorney Lawrence Diehl told Virginia Lawyers Weekly that he, along with other family law attorneys, was surprised when the Court of Appeals decision was handed down. Because that ruling was void ab initio, it could have allowed a torrent of claims if the Supreme Court of Virginia allowed it to stand.

“This could have opened up a floodgate of hundreds and hundreds of cases where people come in and get to void these agreements and pay less,” Diehl said of the Court of Appeals ruling. “It would have had a disastrous financial impact on the spouse. We’re talking about a complete disaster and catastrophe for the former spouses who are relying on that income stream.”

Diehl, who wrote an amicus brief for the Virginia chapter of the American Academy of Matrimonial Lawyers in support of the reversal, said the decision by the Court of Appeals to overturn Owen would have “voided the ability of parties to contract on this issue.”

“The ability of parties to freely contract is a major issue because parties settle these things all the time and do agreements,” he said.

The national chapter of the AAML also filed an amicus brief supporting the appeal.