Rules for Dividing Military Pensions During a Divorce

When military service members or veterans divorce, their ex-partners may receive a portion of their military pension benefits. State courts oversee the division of property, but federal law also plays a role. These laws specify the amount of the military pension a court may award to a non-military spouse. There are some limits, but the courts consider a number of factors when making final calculations.

A financial advisor who specializes in divorce and military pensions can help you navigate what comes next.

Military Pensions in Divorce

Federal law doesn’t recognize that ex-spouses have a right to receive military retired pay. Instead, it grants state courts the ability to divide military retired pay, treating it as a marital asset.

Federal law limits the amount that courts can take from a military pension benefit. The figure for a divorce property settlement is set at 50% of the military member’s disposable retired pay. The court calculates the amount of retired pay based on the member’s rank. It also factors in years of service at the time of the divorce decree. No pension pay distribution occurs until the service member retires. A divorced retired service member may be required to contribute up to 65% of retired pay when the court includes other payment obligations. These additional obligations could include alimony or child support. ¹

The 10/10 Rule

Divorced spouses of military service members may receive payments from military pensions in two ways. Either directly from the government’s Defense Finance and Accounting Service, or from the former spouse. The government will pay an ex-spouse directly if the couple was married for at least 10 years overlapping with at least 10 years of military service. Courts call this the 10/10 rule.

If the 10/10 rule applies, accountants will garnish the retiree’s benefit and deliver the awarded amount to the ex-spouse. Otherwise, the retirement pay goes to the retiree. They have the responsibility of distributing the money to the ex-spouse as required by the divorce court order.

The 10/10 rule affects only the manner of payment, and not the eligibility to receive benefits. Nor is there any other requirement that spouses be married for a minimum amount of time for an ex-spouse to be eligible for a portion of military retirement pension benefits. ²

State Rules

State rules on divorce and the division of property vary. This remains true when it comes to dividing military pensions in divorce. In most states, courts only divide the portion of the pension earned during the marriage. However, community property states presume an equal 50-50 division of all marital property, including military pension assets.

Determining which state has jurisdiction can be a challenge. The difficulty arises because of differences between states, along with a servicemember’s mobile lifestyle. Under the right circumstances federal law grants a state court the authority to divide a military pension. It can only do this if the spouse is a legal state resident and not there because of military duty. Also they must agree to the court’s decision on pension division. Absent those conditions, a state court can’t divide military pension assets.

Other Benefits

Military pensions can be treated as an asset and divided in divorce. However, some payments from the military can’t be divided this way. Veterans Administration disability compensation payments, for instance, aren’t subject to state divorce awards. Similarly, disability pay for disabilities acquired during service are usually not divisible, either.

Divorce also affects some non-monetary benefits. For example, an ex-spouse can retain a military ID, medical benefits and access to post exchanges for life if their 20 years of marriage includes 20 years of military service. Remarriage and taking a job with health insurance benefits can cause these benefits to terminate, however.

Generally speaking, the landscape of divorce and military pension benefits is complex. Military members involved in divorce often turn to attorneys and other professional specialists. This guidance helps them navigate federal laws, state divorce laws, and individual circumstances.

How to Calculate and Value the Military Pension in a Divorce

Understanding the rules around dividing a military pension is one thing. Figuring out the value of the pension and how to split it determines the financial outcome for both parties.

Courts generally use one of two approaches. The first method, called an immediate offset, assigns the pension a present-day dollar value and the non-military spouse receives other marital assets of equal worth in exchange for giving up their claim to future pension payments. The second method the court uses, deferred distribution, does not calculate any value upfront. Instead, the non-military spouse receives a share of each pension payment after the service member retires.

Immediate Offset vs Deferred Distribution

When the court uses an immediate offset, a financial professional or actuary estimates what the future pension payments are worth in today’s dollars. That calculation requires assumptions about how long the retiree will live, what discount rate to apply, what rank the service member will hold at retirement, and whether cost-of-living adjustments will apply. Even small differences in these assumptions can move the valuation significantly. The estimate must be accurate because the non-military spouse gives up any future pension claim once they agree to the offset.

Under deferred distribution, courts typically apply a formula based on how many years the marriage overlapped with creditable military service, divided by the total years of service at retirement. The court applies this ratio, sometimes called the marital fraction or coverture fraction, to each monthly pension payment after retirement begins. The non-military spouse receives their percentage of each check for as long as the retiree collects benefits.

Which method the court uses has real consequences. An immediate offset puts assets in the non-military spouse’s hands right away, but it relies on projections that may turn out to be wrong. If the service member stays in longer than expected or promotes to a higher rank, the pension could end up being worth more than the value assigned at the time of the divorce. Deferred distribution avoids that uncertainty but means the non-military spouse won’t see any money until the service member actually retires, which could be years away. It also means the non-military spouse’s income from the pension depends on career decisions they have no control over.

Survivor Benefit Plan

Courts must also address the Survivor Benefit Plan during the divorce. SBP provides an annuity to a designated beneficiary if the retiree dies. The retiree can name a non-military spouse as the SBP beneficiary in the divorce, which protects their pension share if the retiree passes away first. This election has a deadline. The retiree must make it within one year of the divorce, or they might lose the opportunity. SBP premiums reduce the retiree’s monthly payment, so the settlement should specify who bears that cost.

The language in the court order also matters more than most people realize. DFAS processes military pension division orders and has specific formatting and language requirements. An order that uses vague terms, references the wrong pay categories, or fails to include required details faces delays, processing errors, or outright rejection. DFAS publishes guidance and sample language for attorneys drafting these orders. Have someone experienced with military pension division review the order before to prevent problems.

Bottom Line

The courts divide a military pension after divorce based mostly on state laws. However, some federal restrictions influence the decision. Typically, it awards no more than 50% of the value of a military pension to a former spouse of a retired service member. There’s no minimum length of time a couple must be married for one to be eligible for a portion of military pension benefits. However, the length of the marriage can determine whether the government pays the ex-spouse directly or the retiree receives benefits and must pay their former partner.

Retirement Tips

• A financial advisor can help protect your financial interests and create a plan for your future needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• SmartAsset’s Retirement Calculator tells you how much to be saving now in order to be financially set for retirement when the time comes.

Photo credit: ©iStock.com/bymuratdeniz, ©iStock.com/Photographer and Illustrator, ©iStock.com/Vimvertigo