QDRO Corner: Military Disability Retirement

Here in the DMV, we represent a large amount of military service members. As such, we see the military pension (disposable pay) frequently, along with military disability pay. Military disability is paid through the Department of Veterans Affairs and is not taxable income and is not divisible in a divorce.  

This is an important distinction not because there is anything that can be done about it when negotiating a settlement, but to set good expectations for your client. When a military member is receiving regular disposable pay and has a disability rating that makes them eligible for disability pay, it is solely the member’s option whether to receive the funds as disposable pay or disability pay. This option cannot be waived by the member in a separation or divorce agreement.

If the member has a disability rating less than 50%, the only way to receive disability is to waive an equal amount of disposable retired pay, i.e.: the member will receive the same amount of gross funds each month, but the amount that is disability will not be taxed, therefore netting a larger amount. This decision impacts the former spouse because the member can decide to receive disability pay, thereby increasing their own income by avoiding taxes, and lowering the former spouse’s income by decreasing the amount of disposable retired pay available for division. Note, there is no way to draft around the member’s option – the only way to try to equalize is to take from a different asset.

If the member has a disability rating of 50% or higher, they may be eligible for Concurrent Retirement and Disability Pay. This program allows eligible members to receive their full disposable pay, as well as disability pay without waiving any of the disposable pay.  

The amount of disability received from the Department of Veteran’s Affairs can change based on periodic re-evaluations. If the disability rating changes, the amount of disability received will likely change. The amount of disability received will only change if the disability rating changes.

Stay tuned for next month’s QDRO Corner about FERS disability pay for federal government employees!