Divorces involving a spouse in the military generally involve unique issues. In the recently published decision of Fattore v. Fattore, the Appellate Division held that the trial court cannot replace, “dollar for dollar”, an ex-spouse’s benefit from a military pension that was lost after the military spouse elected to receive disability benefits. Doing so is against Congress’ intent to omit such disability benefits from veteran retirement pay that is otherwise subject to equitable distribution. However, the trial court may treat the lost pension benefits as a change in circumstances warranting alimony and/or an alimony modification for the spouse who lost his/her share of their ex-spouses military pension. This is true even when there is an alimony waiver as part of the parties’ divorce, which is what the parties had in Fattore. After all, the family court is a court of equity and so we should expect, and hope for, some sort of an equitable result.
Okay, that was a mouthful! It’s not often that our New Jersey family law cases explore military law, Congressional intent and/or United States Supreme Court cases. In order to better understand the complexities here, and delve into that Federal law, let’s break this down with the relevant facts:
- When the parties divorced in 1997, they both agreed to waive alimony from the other. They distributed the equity in the marital home. They also divided their pensions in equitable distribution, with each party being entitled to 50% of the marital portion of each other’s pension. Plaintiff/ex-wife had a pension through her employment as an operating nurse and Defendant/ex-husband had a pension through his service in the Army National Guard. Defendant was still serving in the Army National Guard at the time of their divorce.
- The parties obtained a Qualified Domestic Relations Order (“QDRO”) following their divorce, which is the Order that allows for distribution of a retirement account in the event of a divorce without taxes and penalties typically associated with retirement account withdrawals.
- In 2002, Defendant became disabled and, accordingly, was forced into retirement from the Army. Upon becoming disabled, Defendant was authorized to collect his pension and Social Security benefits. After collecting his pension for some time, Defendant elected to receive tax-free disability benefits. Defendant’s receipt of these disability benefits eliminated Plaintiff’s share of the Army pension.
- In the meantime, Plaintiff was unaware that Defendant’s pension was in pay status, while Defendant believed that Plaintiff was collecting her proper share. Plaintiff learned that her share of the pension was forfeited after she contacted the Army offices regarding the status of her payments that she never received.
- In 2016, Plaintiff filed a Motion seeking compensation for her equitably distributed share of Defendant’s pension that she lost by virtue of Defendant collecting disability. The trial court held that Defendant must pay Plaintiff a tax-free equitable distribution payment of $1,800 per month pending a pension appraisal that the trial court ordered to determine the value of the Army pension at the time of the parties’ divorce. Notably, Plaintiff sought alimony in lieu of the pension payment but the trial court denied that request, holding that alimony does not replace equitable distribution.
- Three months after the trial court’s decision, but before the Appellate Division decision, the United States Supreme Court issued a decision in the matter of Howell v. Howell, based on an Arizona family law case. To understand Howell, we must first know that Congress had previously enacted USFSPA, which permits state courts to equitably distribute “disposable retired pay” except for such retirement pay that is waived because of disability benefits. That waived pay is excluded from equitable distribution. This is the exact issue faced by the parties in Fattore.
- The Supreme Court in Howell, as cited by Fattore, held that “a military pension, which has been equitably distributed, is not a vested right, but rather, a contingent benefit where the pension is later reduced as a result of a veteran’s disability and”
[t]he state court did not extinguish (and most likely would not have had the legal power to extinguish) that future contingency. The existence of that contingency meant that the value of [the wife’s] share of military retirement pay was possibly worth less—perhaps less than [the wife] and others thought—at the time of the divorce.
- The Supreme Court in Howell further found that state courts cannot overcome Congress’ intent to omit disability benefits from disposable retirement pay. In other words, to give the spouse “dollar for dollar” what he/she lost from the pension due to the military spouse’s disability benefits is contrary to Congress’ intent when enacting USFSPA.
Now that we have the background, let’s talk about the Appellate Division’s holding:
- Following Howell, which the trial court did not have at the time it decided this case, the Appellate Division reversed the decision because the trial court’s order for a pension evaluation and, seemingly, “dollar for dollar” replacement of the amount Plaintiff lost from Defendant’s pension was contrary to USFSPA and Howell.
- The Appellate Division rejected potential remedies of (1) contractual enforcement/indemnification because the parties did not have such an agreement; (2) offset or reallocation of equitable distribution because of the amount of time that passed and, importantly, “equitable distribution is final and not subject to a change in circumstances”; and (3) res judicata because the Supreme Court had already issued an opinion in the case of Mansell, holding that a veteran’s retirement benefits lost due to collecting disability benefits are not disposable retired pay that is subject to equitable distribution.
- Ultimately, the Appellate Division held that an alimony award may be the appropriate remedy notwithstanding the parties’ alimony waiver at the time of their divorce. In order to get around this waiver, the Appellate Division cited prior case law standing for the proposition that Family Part judges have “a broad supervisory role” to determine whether a divorce agreement is fair, and that Family Part judges have “greater discretion when interpreting such agreements”. The Appellate Division also noted the parties’ duty of fairness to each other, which is separate from the judge’s duty to assure fairness. The Court did not stop there – it continued by citing to the parties’ income disparity at the time of their divorce (with Defendant earning 34% more than Plaintiff) and the fact that Plaintiff gave “valuable consideration” in exchange for the alimony waiver. Notably, the Court stated:
[T]he unforeseeable loss of the bargained for pension benefit was a substantial and permanent change in circumstances, which invalidated the waiver. Upholding the alimony waiver in these circumstances would be wholly unfair.
While there is a lot to digest from this opinion, the security it offers is something special about the Family Part being a Court of Equity. Of course, the military spouse who thinks he/she has an alimony waiver may not feel so secure. It therefore follows that this decision provides good practice tips for divorce matters with spouses in the military – Rather than going with the typical division of retirement benefits by way of QDRO, we may want to consider an offset in equitable distribution that avoids having the distribute a military pension and, thus, the potential loss to the non-military spouse.
Lindsay A. Heller is an associate in the firm’s Family Law practice, based in its Morristown, NJ office. You can reach Lindsay at 973.548.3318 or lheller@foxrothschild.com.
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