Divorce and Veterans 101: What you need to know
In honor of Veteran’s Day next week, we’ll discuss veterans and divorce this week here on Divorce Nest.
Did you know that 62% of first marriages for combat veterans are likely to end in divorce? They’re more likely than vets who didn’t see combat to be divorced. Female enlisted soldiers have nearly double the divorce rate compared to female officers.
Although divorce is divorce, there are a few ways that divorce for a military member or veteran differs from what civilians go through.
“Veterans Day is the time to celebrate the men and women who have worn this nation’s uniform and to honor their service.” — Tammy Duckworth
There are some myths floating around about how benefits can be used in divorce.
These benefits are protected from ordinary creditors. However, spouses and children are not ordinary creditors! So, VA benefits are considered income for the purposes of support, both for the child and the spouse.
However, they are not divisible property. They can’t be taken as assets and divided in half.
Military retirement pay
Depending on the state divorce laws, this may be an asset. The non-military spouse may be awarded their share of it.
In many cases, the military pension is one of the most significant assets of the household, so it’s important not to overlook it. This is also a case where you might want to bring in a financial practitioner such as a Certified Divorce Financial Analyst ® for some help.
Valuing a pension can be difficult for anyone who’s not a financial expert. Not only do you need to figure out the lifetime income stream, but to apply the time value of money to it as well.
The pension ends when the military spouse does. The non-military spouse needs protection to make sure they continue to get their share, if their ex predeceases them. Life insurance on the military spouse or use of the SBP (discussed below) can take care of this for you.
Civilian ex-spouses can often receive their share of spousal benefits whether or not their spouse retired. Certainly, Social Security benefits for divorcees don’t require that their ex be collecting for them to receive money (unless they’ve been divorced less than two years.)
However, with military retirement, the former spouse can’t start collecting retirement pay until the retiree does. Unfortunately, it’s not unheard of for the military member to refuse to retire, just so their ex-spouse can’t collect!
You can protect yourself from this by taking an equivalent amount of assets from somewhere else, assuming you do have enough in assets.
Thrift Savings Plan (TSP)
This retirement plan is similar to a 401(k) in the corporate world. The funds inside are often much cheaper than their private sector equivalents. It’s considered a divisible asset for divorce purposes.
The usual difference between separate and marital property applies here. If the military member began contributing to their TSP before the marriage, the amount in the account prior to the wedding is their separate property. Anything after the divorce is theirs as well.
One difference between the TSP and a 401(k) is that in the corporate world, you need a Qualified Domestic Relations Order (QDRO) to divide the account. The TSP requires a court order, which can be issued at any time during the proceedings.
Survivor Benefit Plan
Even if the former spouse was beneficiary during the marriage, they and the military spouse have to jointly sign a letter requesting the division. They’ll need to note whether this is being taken as a result of a divorce decree or court order.
The monthly SBP costs to the member are nontaxable. However, distributions to the former spouse will be taxed at their ordinary income rate.
The former spouse can be designated as a Survivor Benefit Plan beneficiary. They have to notify the military finance center within a year of the divorce to make sure it’s done correctly. If the former spouse remarries before they’re age 55, their SBP is terminated (unless that marriage ends in death or divorce.)
It’s in the interest of the non-military spouse to fulfill the 20/20/20 rule, which will allow them commissary and health (among other) benefits after divorce.
This is the rule when the marriage lasted at least 20 years, the military spouse has at least 20 creditable service years toward retirement, and 20 of those service years were during the marriage. Benefits are terminated upon remarriage.
Although divorce is pretty much the same process for civilians and veterans alike, there are some issues veterans need to pay attention to that others don’t.
The decisions made in the divorce often make a big difference in the livelihood of the non-veteran spouse. Choose wisely.
And thank you to our veterans for their service!
Need more information on handling finances during divorce? Let us know.