Is Military Retirement Pay Considered Alimony in Divorce Settlements?
Understand how military retirement pay is treated in divorce settlements, including legal classifications, state variations, and tax implications.
Divorce settlements can be complex, especially when military retirement pay is involved. A key question is whether this income is considered alimony. The answer depends on federal regulations, state laws, and the specifics of a divorce decree.
Understanding how military retirement pay is classified and divided is important for both service members and their spouses.
Federal Classification
Military retirement pay is governed by federal law, specifically Title 10 of the U.S. Code. Unlike civilian pensions, it is not classified as a qualified retirement plan under the Employee Retirement Income Security Act (ERISA) and follows different legal rules. The Uniformed Services Former Spouses’ Protection Act (USFSPA), enacted in 1982, allows states to treat military retirement pay as marital property rather than income, making it subject to division in divorce cases. However, this does not mean it is automatically considered alimony.
The distinction between property division and spousal support is important. Alimony is typically based on financial need and can be modified or terminated under certain conditions, such as remarriage. When military retirement pay is divided as property, it is generally a fixed asset rather than an ongoing support obligation. Once a court awards a portion of the retirement pay to a former spouse, it is usually not subject to modification, unlike traditional alimony, which can be adjusted based on financial changes.
State-Specific Laws
Each state applies different rules when handling military retirement pay in divorce settlements. Some follow community property laws, meaning marital assets—including military retirement pay—are split equally. Others use equitable distribution, where courts divide assets based on factors such as the length of the marriage, each spouse’s financial standing, and contributions to the household.
In community property states like Texas and California, military retirement pay earned during the marriage is typically considered joint property and divided equally. Judges in these states have less discretion in determining the split, as the law mandates an even division. In equitable distribution states such as Florida and New York, courts weigh multiple factors, which can result in an uneven split if one spouse has a greater financial need or if other assets offset the division.
Some states impose additional restrictions. Kentucky, for example, limits the percentage a former spouse can receive, while Arkansas courts may consider whether the recipient spouse has other retirement benefits before awarding a share of military retirement pay. Certain states also require a marriage to have lasted a minimum number of years before military retirement pay can be divided, even though federal law does not impose such a restriction.
Division in Divorce Decrees
Courts determine how military retirement pay is divided based on the length of the marriage and its overlap with military service. A longer marriage generally results in a larger portion being awarded to the non-military spouse, particularly if they sacrificed career opportunities to support the service member’s career.
The method of calculating the former spouse’s share varies. Courts may award a fixed dollar amount or a percentage of the retirement pay. A percentage-based award allows the former spouse to benefit from future increases in the service member’s retirement pay, including cost-of-living adjustments. A fixed amount does not change over time, which could reduce its value due to inflation.
If the service member receives other military-related income, such as disability compensation or concurrent retirement and disability pay (CRDP), courts must structure the award carefully. Federal regulations restrict the division of certain benefits, and improper structuring can lead to legal disputes or unintended financial consequences.
Enforcement and Payment Logistics
Ensuring a former spouse receives their designated portion of military retirement pay requires following specific legal and administrative procedures. If payments are processed through the Defense Finance and Accounting Service (DFAS), the former spouse must meet the “10/10 rule”—the marriage must have lasted at least ten years, overlapping with ten years of military service. If this requirement is met, DFAS can make direct payments, reducing the risk of missed or delayed transfers. If the rule is not satisfied, the service member is responsible for making payments directly, which can create enforcement challenges.
Court orders must be precise in outlining payment terms to prevent disputes. If a divorce decree does not specify whether payments should be adjusted for cost-of-living increases, disagreements can arise later. Some decrees include garnishment provisions, allowing automatic deductions from the service member’s retirement pay if they fail to comply. Courts may also impose penalties, such as contempt charges, wage garnishment, or liens on other assets, to enforce compliance.
Tax Considerations
The classification of military retirement pay in a divorce settlement has tax implications for both parties. Whether payments are structured as a division of property or as alimony determines how they are taxed and reported to the IRS.
If military retirement pay is divided as property under a divorce decree, the former spouse’s portion is considered their own income and taxed accordingly. DFAS issues a Form 1099-R to both the service member and the former spouse, reflecting their respective shares. Since this is treated as retirement income rather than support, the service member cannot deduct the payments, and the recipient must report them as taxable income.
If a court classifies payments as alimony, the tax treatment depends on when the divorce was finalized. For divorces finalized before 2019, alimony payments are deductible for the payer and taxable for the recipient. However, under the Tax Cuts and Jobs Act (TCJA), alimony agreements finalized on or after January 1, 2019, are no longer deductible for the payer and are not considered taxable income for the recipient. This change makes it less advantageous for a service member to agree to alimony payments instead of a direct division of retirement pay.