(Editor’s Note: This article by Mark E. Sullivan is from the most recent edition of the NJSBA Family Law Section’s New Jersey Family Lawyer. Section members can read the full issue here.)
When family law practitioners encounter a military divorce case, one of the first issues that arises is something called the “10/10 Rule” – or the requirement that 10 years of marriage must overlap with 10 years of service, and that this overlap affects the division of military retire pay. This article will provide some answers.
Tip #1 – Know What the “10/10 Rule” Is
To obtain garnishment payments from the retired pay of a servicemember (SM), the former spouse (FS) must meet the requirements of the “10/10 Rule.” This means that John Doe, the soon-to-be-ex-spouse of Jane Doe, must have been married to her for at least 10 years during which he served at least 10 years toward eligibility for retired pay.
Note that, for purposes of the Rule, the termination of marriage occurs at the date of divorce or dissolution. It does not mean the date of separation, date of filing the case, or date of irretrievable breakdown of the marriage. It does not even mean the date of a decree of legal separation. Only the termination of the marital relationship by means of a decree or a judgment of final divorce will mark the end of the marriage for the “10/10 Rule.”
Why is the Rule important, and for whom does it matter? The accepted wisdom has usually been this: The retired pay center will only garnish retired pay as property division when the “10/10 Rule” has been met, and the former spouse is the one who needs the garnishment to ensure monthly payments. Without it, they would be left with unreliable enforcement methods under state law.
But it is also the SM/retiree who needs the pension-share garnishment. For John Doe, pension payments to Jane Doe from the retired pay center mean that he will be able to exclude Jane Doe’s share from his taxable income. The share paid to each party is reported as taxable income by the center to the IRS, which issues each party a Form 1099-R each January. There is no income-exclusion guarantee for John without a garnishment from the retired pay center, so both parties would benefit from the 10/10 Rule.
Tip #2 – Know What the “10/10 Rule” is Not
Note that the “10/10 Rule” is not a jurisdictional requirement for dividing military pensions. Contrary to the “barracks rumors” which circulate in the civilian bar, there is no limitation on the number of years of marriage overlapping military service as a prerequisite to military pension division. A military pension may be divided by court order whether the marriage has lasted for 30 years, 30 months, or 30 days during military service. Rather, this time requirement is a prerequisite to enforcement through the retired pay center. Garnishment of retired pay as a payment mechanism is only available if the “10/10 Rule” is obeyed; otherwise, the FS is left with only state court remedies (e.g., contempt of court).
Tip #3 – How to Avoid the “10/10” Trap
When the terminating event is the SM’s retirement, there is no way to avoid the problem of “no garnishment.” Courts do not have the power to order a SM to continue serving until the “10/10 Rule’s” requirements are met.
When divorce is the terminating event, however, there may be room to maneuver. Delay of the divorce is often an option. The court may continue the divorce hearing when discovery is pending; counsel for the spouse may make use of legitimate discovery as to marital assets and debts, the SM’s income (including pay and other entitlements), and domicile. In one case handled by the author, the wife was able to put off the divorce hearing for over 18 months and eventually obtain pension-share garnishment. Instead of filings for the sole purpose of delay – which would be unethical – the efforts focused on discovery and documents, so as to determine whether the husband-SM was indeed a legal resident of North Carolina.
Tip #4 – Present-Value Set-off
When there is other property of equivalent value, it may be possible to value the marital share of the military pension and then do a set-off against that property. The valuation would involve an estimate of John Doe’s retired pay, future increases due to COLAs (cost-of-living adjustments), projections about John’s life expectancy, and a discount rate. This could be done by a CPA, economist or actuary.
The problem in most cases, however, is that there is no other property with a value similar to that of the military pension. This retirement annuity could start as early age 38 and last for another 40 years or more, depending on life-expectancy tables and estimates. The value could be half a million dollars or more.
Tip #5 – Garnishment of Spousal Support
When there has been no waiver of spousal support, another option is open to Jane Doe in her settlement negotiations. A garnishment for alimony through the retired pay center does not require “10/10 Rule” compliance. The center will comply with a court order for pension garnishment (for spousal support, as opposed to property division) with less than a 10/10 overlap of marriage and military service.
In addition, there is no requirement that the payments be expressed in terms of a fixed dollar amount. The center will accept an order that states “John Doe will pay 30% of his disposable retired pay to Jane Doe as spousal support,” which means that there will be automatic adjustments for COLAs each December. A flat dollar award captures no COLAs.
Finally, the tax consequences of such a negotiated settlement favor Jane, the former spouse. Instead of taxable monthly payments as pension division, Jane receives tax-free alimony payments. The Tax Cuts and Jobs Act made spousal support payments non-taxable for the recipient. The parties may want to take this into account in setting the amount or percent of the pension going to the former spouse in the military divorce settlement.