In 1981, the United States Supreme Court, in McCarthy v. McCarthy, held that the state courts could not divide federal military pensions. Congress, in response, enacted the Uniform Service Former Spouses Protection Act (USFSPA) allowing the state courts to divide service member’s disposable retirement pay according to the laws of the state
Downsizing has affected the military as well as the private sector. To enhance early retirement in the private sector, companies offer enhanced early retirement benefits. The California Supreme Court determined in In RE Marriage of Lehman (1998) 18 Cal. 4th 169 that “… a non employee spouse who owns a community property interest in employee spouse’s retirement benefits package under such a plan owns community property interest in the latter’s retirement benefits as enhanced.” The employer’s motivation for the payment of benefits and the employee’s reason for accepting them are irrelevant considerations in characterizing employment benefits.
The military compliment to the civilian enhancement are as set forth in 10 United States Code, Section 1175 and it consists of VSI “which is a monthly payment or a lump sum payment termed “Special Separation Benefit” (SSB)
In the case of In RE Marriage of Babauta (1998) – ___Cal. App 4th ____, decided September 10, 1998, Evangelist Babauta divorced in 1991 when he was a Captain in the Marine Corps. He was eligible for retirement in 1995, but in 1993, he took advantage of the voluntary separation program and elected VSI payments. His Judgment of Dissolution retained jurisdiction over his military retirement benefits. Mr. Babauta claimed the payments to be non divisible by the State Courts as it was not “disposable retired pay” subject to USFSPA and that if the Court did exercise jurisdiction over the payment that the payment was his separate property because it was a cushion for job loss and dislocation as opposed to payment for past services. The Court of Appeal found that the State Court does have jurisdiction– relying on the Department of Defense brochure providing that the treatment of VSI or SIB by a State Court in divorce is not dictated by federal law, but is left up to the states. Similar results have been reached in Colorado, Arizona, Montana, Oklahoma, South Carolina and Texas. Ohio, however, has held otherwise.
The California Court of Appeal, also consistent with In Red Marriage of Lehman , characterized the payments as divisible community property.
Readers are welcome to contact my office should there be any questions regarding the above.