Military Disability, Divorce Settlements Clash at SCOTUS

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By Bernie Pazanowski

Whether a veteran can get around paying a full divorce settlement by waiving part of his retirement pay in favor of disability payments was one of the issues taken up at the Supreme Court today ( Howell v. Howell, U.S., No. 15-1031 , argued 3/20/17 ).

The court is faced with reconciling the two types of pay, the federal statute that regulates them, state law considerations and the need to preserve the integrity of divorce settlements.

The case boils down to whether veterans can unilaterally change the terms of a divorce decree by shifting from one kind of benefit to another.

Military retirement pay can be divided between spouses under the federal Uniform Services Former Spouses’ Protection Act, but disability pay can’t.

Under the statute, however, when a service member takes disability, retirement pay is reduced by the amount of the disability benefit. Even though monthly payments are the same, most service members choose disability if they have a choice because it isn’t taxed.

John and Sandra Howell divorced in 1991 and agreed she would receive half of his military retirement. That arrangement worked until John accepted 20 percent disability payments starting in 2004, which reduced Sandra’s monthly benefit.

Arizona courts ordered John to pay Sandra half of his retirement pay without factoring in the disability allocation. He argued that he couldn’t be required to pay Sandra part of his disability because federal law preempted the state-court order.

In Mansell v. Mansell , 490 U.S. 581 (U.S. 1989), the Supreme Court ruled that state courts can’t treat as divisible property retirement benefits that are waived to receive disability pay.

But the service member in that case waived the appropriate portion of his military pay before his divorce. In this case, John didn’t waive the 20 percent of his retirement pay until after he and Sandra divorced.

Timing Makes No Difference

Mansell applies in this case, Adam G. Unikowsky, who represented John Howell, told the justices. The USFSPA compels that result and it just makes sense, he said.

But Justices Ruth Bader Ginsburg and Sonia Sotomayor questioned whether state courts can’t just make up the difference of the waived amount from other marital property, which was the argument proposed by Assistant to the Solicitor General Ilana H. Eisenstein on behalf of the United States as amicus curiae supporting Sandra.

The settlement agreement could have been written differently to avoid the issue altogether, but it wasn’t, Unikowsky, of Jenner & Block LLP, Washington, said. What the state court did was an improper division of the marital property, he said.

Several of the justice were concerned whether reading the statute the way Unikowsky proposed allowed John to pull a bait-and-switch on Sandra. Under the settlement agreement, Sandra was relying on a given amount for life and John was able to unilaterally change that amount, Sotomayor noted.

Possible Modification

The federal statute acts at the time of the divorce because state courts have to be able to divide the marital property, Sandra’s attorney, Charles W. Wirken, Gust Rosenfeld PLC, Phoenix, told the court. The decree defining the property to be divided should be final, he said.

Wirken also disagreed with Justice Stephen G. Breyer’s assertion that Sandra’s property interest in John’s retirement payment was a contingent interest that could be changed in the future. The USFSPA doesn’t speak to contingencies, he said.

Chief Justice John G. Roberts Jr. told Wirken that his reading of the statute created a way around Mansell. That seems contrary to what the legislature intended when it created the no-waiver rule for disability benefits, he said.

Wirken responded that if a waiver is made prior to a divorce, that amount can’t be divided. But the parties in this case made an agreement, which included a “covenant of good faith and fair dealing.” John broke that agreement when he chose to apply for disability pay, he said.

Giving Law a ‘Bad Name.’

Breyer asked Eisenstein if the government raised John’s retirement pay, would Sandra be entitled to a raise also? She said, yes.

Doesn’t the same argument apply if the government lowers John’s retirement pay? he asked. Eisenstein suggested, however, that if the amount is lowered, state courts can look at John’s other assets to make up the difference.

Roberts interjected that Eisenstein was suggesting a “charade” to get around the no-waiver provision. “That’s the sort of thing that gives law ... a bad name,” he said.

To contact the reporter on this story: Bernie Pazanowski in Washington at bpazanowski@bna.com

To contact the editor responsible for this story: Jessie Kokrda Kamens at jkamens@bna.com

For More Information

Full text of transcript at http://src.bna.com/m9V.

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