Attention! Military changes affecting family law

Recent changes in the military retirement system might call for legal professionals to familiarize themselves with the new standard operating procedures.

One of those changes, perhaps the most significant to family law attorneys—especially those who practice in “military towns”—is the “blended retirement system,” a modernized retirement system that applies to every service member who began his or her service after Jan 1, 2018.

Mary Fran Quindlen, a former Marine and family lawyer who practices in Beaufort, shares her knowledge of military law with other attorneys who may not be as savvy. And it’s not just lawyers who can benefit by staying abreast of the changes, but judges as well. Quindlen said that only a handful of judges in South Carolina are former military, married to military spouses, or otherwise have working knowledge of military law.

“I’m usually selling it to judges—Hey, you guys have to actually understand this stuff,” she said. “These are going to be issues coming in front of you soon, so do your homework. Read. Look at the U.S. Code. Look at the NDAA [National Defense Authorization Act] and read about the blended retirement system.”

Out with the old

Those who entered the military on or before Dec. 31, 2017, can either opt in to the new system or be grandfathered in to the “legacy” system, which required 20 years of service for any type of pension benefits.

According to Quindlen, who called the retirement changes “a complete overhaul,” there are three changes that might affect how attorneys handle these cases going forward: A thrift savings plan (TSP) retirement match, continuation pay, and a lump sum payment.  

Put in simple terms, the legacy system—a defined benefit program—vested service members after 20 years and would pay them roughly half their monthly base pay as pension. Beyond 20 years, the government multiplied the years of service by 2.5 percent of the base pay. So, after 30 years, for instance, the retirement amount would add up to roughly 75 percent of a member’s base pay.

The blended system incorporates a defined benefit element (though the annual multiplier drops to 2 percent) and a defined contribution element, which will allow the service member to participate in the TSP, a 401(k)-like plan. In the government-created TSP, service members will automatically be enrolled with a 3 percent contribution but can elect to contribute up to 5 percent. After two years, the government will match contributions.

“Basically, you will be able to get 5 percent in and 5 percent match for your money to go into regular retirement account,” Quindlen said.

The second change is the implementation of continuation pay or, as Quindlen calls it, a “signing bonus.” Essentially, around the 12-year mark, service members will receive a bonus that will be paid out over three years. The bonus amount can vary according to branch of service and job title.

With changes right around the corner, Quindlen said much is still being figured out.

“It’s really significant to family law because, is it marital? Is it nonmarital?” she said. “If you get separated, if you commit misconduct, then you have to pay it back. If you are medically separated you stop getting it. Lots of good questions for family law. It’s also taxable … income for the purposes of child support and alimony.”

Gangway, legacy

Service members will also have the option of receiving a lump sum payment of 25 or 50 percent of their retirement from the time they become retirement eligible until they become eligible for Social Security benefits. In other words, a retiree could get a government check for up to half of his total retirement amount when he leaves active duty. Quindlen said that the service member would receive partial retirement checks until he is fully vested in Social Security, when he would begin receiving full retirement.

“I had a couple of CPAs calculate it, and it’s hundreds of thousands of dollars they’re going to write checks for to people who elect the lump sum option—it’s absurd,” Quindlen said. “I have no idea how the government’s going to pay all this money.”

She added that the money is not recoupable by the government should the service member die, but that it is “completely taxable.”

According to Marine Corps Maj. Amelia Kays, a policy analyst at Marine headquarters in Quantico, Virginia, who wrote an informational letter for other lawyers titled “Silent Partner,” the changes will directly impact the amount of retirement pay that a former military spouse receives for those members who have already signed a separation agreement or received a divorce decree, property division judgment, or court-ordered property settlement.

Members and spouses who file for divorce in cases where the member is eligible to opt in will need to include provisions in their agreements and settlements addressing how the choice affects distribution of the marital or community-property share of the member’s retirement pay.

“The same issues will be present when the case is tried, not settled,” Kays wrote. “The judge will need to be educated on the options and their impact.”

Quindlen expects the changes will raise some issues that will need to be addressed, especially in the coming years, as the old system gradually makes way for the new.

“The reason these are gigantic changes from a family law standpoint is because of all the implications,” Quindlen said. “Is it alimony? Is it child support? How is it divided? Will DFAS [Defense Financing and Accounting Services] pay me? Will they not pay me? It’s like a million, bajillion questions.”

Follow Heath Hamacher on Twitter @NCLWHamacher