How the new military retirement system impacts divorce law

In a previous post, we explored the process of military divorce in North Carolina. Today we will examine how a new military retirement program can affect families in the event of divorce.

Beginning January 1, 2018, the U.S. military is introducing a new retirement system—known as the Blended Retirement System (BRS)—which will apply to all military members who enlist on or after this date. In addition, active duty members who enlisted after January 1, 2006 will have the choice to opt in to this system.

The old system

Under the legacy military retirement system, military members with 20 years of service become eligible for retirement pay. For active duty members, retirement pay is calculated by taking the product of 2.5 percent and the number of years of service multiplied by the average of highest pay received over three consecutive years. For members of the Reserves of National Guard, this calculation is more complicated, but the 2.5 percent—which is the significant figure for our purposes—remains the same.

The new system

The BRS is comprised of two parts: defined benefit and defined contribution. For the defined benefit component, the calculation for determining retirement pay is the same as outlined above, except that the 2.5 percent is reduced to 2 percent. The trade-off for the lower benefit is the defined contribution component, which is a retirement savings plan similar to a 401(k). This plan includes contribution matching by the government.

There are two other new payment options under the BRS:

• Mid-career military personnel can receive continuation pay—monthly pay raises ranging from 0.5 to 13 times their regular pay—in exchange for agreeing to serve three additional years.
• Military members who have become eligible for retirement pay but have not yet reached the age of Social Security payment eligibility can collect a lump sum payment of 25 or 50 percent of their monthly pension payments.

Implications for divorce

The new BRS could majorly affect divorcing military couples. The change in payment calculation from 2.5 to 2 percent can translate into a difference of 50 percent to 40 percent of base pay. This difference can make a big difference in the amount a divorcing partner receives. Additionally, how will continuation pay be handled in a divorce? If the payment comes at the time of the divorce, for instance, is it considered marital property (because of the years of marital service that were required for eligibility) or non-marital property (because of the future service commitment required to receive it)? Finally, if a military member takes the lump sum payment, the ex-spouse will receive lower payment. What legal safeguards are in place to recoup these funds? These questions should be thoroughly explored with your divorce attorney.