New military retirement system in 2018 will raise divorce issues

Crucially important financial issues may arise in previous and future military divorces.

Dividing military retirement is a special, complex issue in divorce that must be handled carefully in a settlement agreement or in presenting the case to the judge, if the issue is contested. The retirement benefits are created and governed by federal law, but are treated in a military divorce, which is mostly governed by state law and granted by a state court, as an asset subject to division according to state law between divorcing spouses.

In this article, we discuss military retirement benefits for active service members, determined in part by time served. Similar, but unique, rules apply to those in the National Guard or reserves, based on a point system.

Current retirement benefits

The current military retirement system is a defined benefit system. Service members are eligible after 20 years of service. The monthly pension benefit is determined by a formula involving the retired pay multiplier (years of service), the retired pay base (average pay of top three continuous years) and a multiplier of 2.5 percent.

New Blended Retirement System or BRS

A new retirement system will begin on January 1, 2018. It is "blended" because it combines a defined benefit like the current system with a defined contribution plan similar to a civilian 401(k) account.

The defined benefit will stay the same, except the multiplier will be reduced to 2 percent. The defined contribution benefit consists of an optional Thrift Savings Plan or TSP that, like a 401(k), receives service member salary contributions and government contributions, depending on contribution sizes, formulas and other factors. A TSP vests after two years of service.

The new plan also will introduce Continuation Pay, which is basically a bonus between January 1 of year eight and the end of year 11. If this pay is accepted, the service member must commit to three more years.

Another new feature will be the option of a lump sum payment when a service member reaches retirement age with correspondingly reduced monthly payments until he or she becomes eligible for Social Security (now 67), at which time the monthly payments would increase to the full amount.

People entering the military after the BRS has taken effect are automatically enrolled. Service members with at least 12 years of service before 2018 will stay in the old system. Those whose lengths of service fall between these two groups will have the calendar year 2018 to decide whether to remain in the existing system or opt-in to the BRS.

BRS and divorce

Former military spouses may not be aware of the BRS and will likely not receive notice when their former service member spouses make decisions under the new plan that will affect the former military spouse. For example, for a former military spouse previously granted a percentage of military pension in divorce, if the service member chooses to opt-in to the BRS, the former spouse's monthly payments would be unexpectedly reduced. Complications could also arise from the lump-sum option.

Future divorce settlements and trials will have to contemplate carefully these BRS provisions as well as optional Continuation Pay.

Whether you are in the military - active, retired or reserve - or your spouse is a service member, if divorce is on the horizon, consult an attorney with military divorce experience who understands the legal issues surrounding military retirement, including those that will arise because of the BRS.

Attorney James L. English of the Colorado Springs law firm of James L. English, P.C., represents service members and military spouses in divorce such as those affiliated with Fort Carson, Peterson Air Force Base, Shriever Air Force Base, Air and Space Command and the U.S. Air Force Academy.