Disability Pay

Courts, attorneys, and parties struggle to understand how state and federal law apply to disability pay in a military divorce.  Disability pay itself is exempt from division under federal law.  In other words, unlike military retired pay, a spouse cannot claim a percentage share of disability pay in connection with the military divorce.

Disability pay, however, creates special problems where a servicemember waives the right to retirement pay to receive the disability.  This creates a quandary for the former spouse, because the servicemember exchanges the right to receive an asset subject to distribution in the divorce for a benefit that cannot be divided or awarded by the family courts.  Family courts have tried to create a special right, called indemnification, where this occurs in certain cases.  Adding to the confusion, however, there are four different types of military disability pay, each of which is awarded under different circumstances.

Military disability retired pay is available for service members who can no longer perform their military duties.

VA disability compensation covers injuries or disabilities that occurred on active duty, or that were worsened by active service. The disability rating system used for VA compensation measures the extent of the disability and its effect on the service member’s employability.

Combat-Related Special Compensation, or CRSC, is a special form of compensation for combat-related disabilities. It is non-taxable, and retirees must apply to their Branch of Service to receive it.

What is CRDP?

CRDP is a restoration of retired pay for retirees with service-connected disabilities.  It is taxed in the same manner as retired pay, and it is normally considered taxable income. No application is required. Eligible retirees receive CRDP automatically.

Service members are permitted to elect disability benefits without the consent of their former spouse. However, if a service member elects disability compensation, the service member must consent to a dollar-for-dollar waiver of retired pay, except in cases where the retiree receives CRSC and CRDP benefits.  The retired pay that is waived is subtracted from the amount available to pay the former spouse. In some cases, the disability waiver occurs after the retired pay is already divided by the divorce case.  As a result, the former spouse may face a reduction in retired pay years after the servicemember retired and the divorce case is closed.

There are legal strategies available to service members and military spouses to anticipate and plan for these types of future events. For instance, a divorce settlement agreement can include a specific provision for indemnification, or reimbursement, of any retired pay that was lost by the former spouse due to the waiver.  Alternatively, the judgment could include a provision for nominal permanent alimony that may be modified to account for any waiver of retired pay.  In cases where the attorney failed to negotiate an indemnification agreement or nominal alimony, a former spouse still may be able to petition the court for an alimony modification or indemnification for the reduction in military retired pay.