Hurt v. Jones-Hurt

Nazarian, J. When Verdena Jones-Hurt (“Wife”) and Walter Hurt (“Husband”), a veteran, divorced, the Circuit Court for Baltimore City included one-third of Husband’s military pension in the marital property award it ordered in Wife’s favor. Years after the divorce, Husband was reevaluated for a military service disability benefit and his disability rating increased, which made him eligible for more disability benefits and allowed him to waive a portion of his pension (which is taxable and may be considered marital property) in favor of disability benefits (which are not taxable and may not, as a matter of federal law, be considered marital property). The result was ⁶¹⁴ that the federal government paid Husband the same amount of money each month, but Husband retained a greater share of it than the circuit court had awarded him: Wife received one-third of a smaller pension benefit, and Husband kept two-thirds of the smaller pension and all of the disability benefits. Wife sought a declaratory judgment seeking, in effect, a ruling that Husband’s election had circumvented the divorce judgment and that awarded her the same amount she previously had been receiving.

Over the course of three different orders, the court ruled that Wife was entitled to the same overall dollar amount from Husband’s total military benefits, notwithstanding the reduction in his pension payout. That result was consistent with three reported decisions of this Court and the greater weight of cases across the country. Husband challenges these decisions and argues, among other things, that our cases were wrongly decided. We need not revisit our earlier decisions ourselves, though, because the Supreme Court of the United States’s opinion in Howell v. Howell, — U.S. -, 137 S.Ct. 1400 , 197 L.Ed.2d 781 (2017), issued after argument in this ease, effectively overrules our precedents and compels us to reverse the judgment of the circuit court.

I. BACKGROUND Husband served in the Army National Guard of Maryland from July 8, 1969 to June 14, 1971 and from May 15, 1985 to October 1,1987. He suffered three injuries during his time in the service—one during the first period and two during the second. After his first injury, Husband received a ten percent disability rating that entitled him to a Wartime Disability Compensation award pursuant to 88 U.S.C. § 1110 . He retired from the Army National Guard in 1998 and later applied for retirement benefits, which would kick in after he turned sixty years old.

Husband and Wife married in 1972, and divorced on October 26, 2004, via a Judgment of Absolute Divorce issued by the circuit court. Among other things, the judgment awarded Wife ⁶¹⁵ alimony of $600 per month for three years and “one-third of the marital share of [Husband]’s pension from the United States Army, the marital share ... to be calculated from June 3, 1972 to April 1, 2002.” Everyone agrees that at the time that it entered the Judgment of Absolute Divorce, the court was not aware that Husband was receiving disability benefits. On January 13, 2009, Husband “filed a claim for increased evaluation” of his disability with the Department of Veterans Affairs (“DVA”). While awaiting the DVA’s decision, Husband turned sixty years old and began collecting his Army pension as a reservist.

See 10 U.S.C. § 12731 . Because a retiree may not receive both reservist retirement and disability compensation, see 38 U.S.C. § 5305 , Husband’s receipt of disability benefits from the DVA automatically reduced his retirement pension from the Department of Defense on a dollar-for-dollar basis. On December 15, 2009, the DVA issued a Rating Decision that increased Husband’s monthly disability entitlement and allowed him to receive thirty, rather than ten, percent of his total military benefits as disability benefits rather than pension: 1 Evaluation of right knee replacement, which is currently 10 percent disabling, is increased to 100 percent effective December 19, 2008. An evaluation of 30 percent is assigned from February 1, 2010[.] On October 26, 2011, Wife reopened the case and filed a Complaint for Entry of Qualified Domestic Relations Orders.

One of the two orders she sought pertained to Husband’s military pension, and would have provided that “any portion of the Service Member’s Disposable Retired Pay that he waives in order to receive military disability retired pay ... in lieu of Disposable Retired Pay shall be added back in, and any deficiency resulting from any such waiver that affects the amount paid directly to [Wife] by the Designated Agent shall be paid to her directly by [Husband].” 2 Husband filed an ⁶¹⁶ answer stating that Wife’s proposed orders were “seriously inconsistent with the October 26, 2004 order.” After a hearing on February 27, 2012, the circuit court denied Wife’s Motion for Entry of Qualified Domestic Relations Orders and entered an order to that effect. On August 21, 2012, Wife filed a Motion for Declaratory Judgment and Ancillary Relief, requesting that the circuit court determine that she had a valid claim to Husband’s pension arrears and that the court enter a Constituted Pension Order that included a provision that “[t]o the extent the Designated Agent is prohibited by law or regulation from paying the entire amount required by this order to [Wife], [Husband] shall personally pay any shortfall to [Wife].” Husband responded that “[t]he order violates federal law and deprives [Husband] of disability benefits for a disability which occurred before the marriage, worsened during the marriage. Such action by the state court is explicitly barred by federal law.” The court held a hearing and determined that Wife was entitled to the same division of retirement benefits in the 2004 order: I agree with both of you. [Husband’s counsel], yes, the court can’t order retirement benefits and disability benefits for— from your client’s military award, but at the same time I agree with [Wife’s counsel] in terms of the Allen case and the argument that every person in the military would then file then later disability and then try and cut the spouse off completely or to a certain percentage of the disability. I don’t think that was the intent of the courts.

I’ve looked at the—and reviewed the judgment of divorce in 2004, and it looks like the court contemplated that [Wife] would receive one-third of all retirement benefits accrued between June 3rd, 1972 and April 2nd, 2002. To deny her benefits that were originally for—I’m sorry, to deny her benefits that the court originally intended for her to share today would be contrary to the intent, I believe, of the court based on the court’s determination after a hotly contested trial of the testimony and the exhibits. ⁶¹⁷ And of course I’m not going to demand that the military-payments be paid directly to [Wife] because it would be in violation of federal law, but in principle not of contract, but out of principle of the intent of the original court that issued the absolute divorce I think and I believe that—and I’m not in [the 2004 judgej’s head, but I think he was trying to award her one-third of the spouse’s, [Husband]’s military retirement. In terms of some sort of provision, [Wife’s counsel], that you’re asking the court to put in here that would limit the amount or prevent her from—that’s something in the future, and because there’s no number that we have definitive now I hesitate to do that, and of course I think if there is ever a 30 percent, they stay with 30 percent or go higher I’m sure—and this court does have jurisdiction over the parties—that you will come back to court and ask for some relief. After two days of hearings on April 16 and 17, 2014, the circuit court entered a Constituted Pension Order that awarded Wife “26.57 [3] percent of [Husbandí’s disposable military retired pay [and] a pro rata share of any post-retirement increases and cost of living adjustments to [Husbandj’s Disposable Retired Pay.” On November 14, 2014, Husband filed a Motion to Modify or Reconsider Ruling As to Military Disability Compensation or, in the Alternative, for Judgment in Favor of Defendant and Request for Hearing.

Wife responded on December 1, 2014, and in an order filed December 9, 2014, the circuit court denied Husband’s motion. 4 ⁶¹⁸ In March 2015, Husband filed a Motion to Amend Constituted Pension Order in which he requested that the court change the percent of the total pension to which Wife was entitled to 23.97% rather than 26.57%. The court denied Husband’s motion, and on September 18, 2015, entered a nunc pro tunc order, that provided, among other things, “that the trial court intended through its Judgment of Absolute Divorce for [Wife] to receive one-third of [Husband]’s military pension benefits accrued between June 3,1972 and April 1, 2002” and that the parties agreed that Wife’s “marital share of [Husbandj’s military pension is 26.6%.” The court further recognized that directing the military to pay the full amount of the pension owed to Wife would contravene federal law and “[ordered] that [Husband] shall pay to [Wife] the differential between the amount [Wife] receives directly from the government once [Wife] begins to receive her portion of the pension through the Constituted Pension Order, and the full amount of the pension she is entitled to receive pursuant to the divorce judgment.” On May 16, 2016, the parties filed a Proposed Supplemental Order, which the court entered on June 14, 2016, that ordered that Husband pay Wife “26.57% of [his] military disability payments by direct payment as a result of converting a portion of his military retired pay to disability pay.” The circuit court then entered a Declaratory Judgment, dated July 15, 2016, declaring that Wife was not entitled to any portion of Husband’s disability benefits and that any portions of the Judgment for Absolute Divorce requiring division of Husband’s disability benefits was unenforceable. The circuit court explained in its accompanying memorandum that it “lack[ed] authority to order division of [Husband]’s military disability benefits, where, as here, [Husband] took no steps to dilute [Wife]’s ordered share of the benefits and the parties reached no agreement regarding division of such benefits.” The court, however, “[declared] that to the extent funds are available for payment of benefits to [Wife] from [Husband]’s disposable retirement pay, [Wife] is entitled to receive the benefits, up to one-third of [Husband]’s benefits as re ⁶¹⁹ quired by the Judgment of Absolute Divorce.” This timely appeal followed. 5 II. DISCUSSION Husband challenges the portion of his military benefits that the circuit court required him to pay to Wife after his military disability benefits increased, 6 and that decision is grounded in legal conclusions that we review de novo.

Wilson v. Wilson, 223 Md.App. 599, 609 , 117 A.3d 138 (2015) (citation omitted). He offers three arguments in favor of reversal. First, he attempts to distinguish this case from three reported cases of this Court that address the division by agreement of a spouse’s military retirement benefits. Second, whether or not this case is distinguishable, he argues, the earlier cases on which the circuit court relied were decided wrongly.

Third, Husband argues that the circuit court considered improperly his future eligibility for military disability compensation when it considered and awarded alimony to Wife. Although it might seem like a regular family law case, this appeal poses a thorny federalism question. Marriage, divorce, and the division of marital property are quintessentially matters of state law, and pension or retirement benefits normally are considered marital property at the time of divorce. But military benefits are creatures of federal law, and the treatment of military benefits in state divorce proceedings has been a source of federal and state tension for decades.

In 1981, the Supreme Court of the United States held that the federal statute governing military benefits preempted state family law and precluded those benefits from being treated as community property in state divorce proceedings. McCarty v. McCarty, 453 U.S. 210, 232-33 , 101 S.Ct. 2728 , 69 ⁶²⁰ L.Ed.2d 589 (1981). The Court of Appeals extended the McCarty principle to marital property in this equitable distribution state soon after. Hill v. Hill, 291 Md. 615, 620-21 , 436 A.2d 67 (1981).

In response to McCarty, Congress passed the Uniform Services Former Spouses Protection Act (“USFS-PA”), codified in pertinent part at 10 U.S.C. § 1408 . That statute authorized states to treat the net disposable pay of retired service members as divisible property. Collins v. Collins, 144 Md.App. 395, 421-22 , 798 A.2d 1155 (2002). The USFSPA defines “disposable retired pay” as “the total monthly retired pay to which a member is entitled” minus certain amounts. 10 U.S.C. § 1408 (a)(4). “Among the amounts required to be deducted from total pay are any amounts waived in order to receive disability benefits.” Mansell v. Mansell, 490 U.S. 581, 585 , 109 S.Ct. 2023 , 104 L.Ed.2d 675 (1989) (citing 10 U.S.C. § 1408 (a)(4)). “Thus, under the Act’s plain and precise language, state courts have been granted the authority to treat disposable retired pay as community property; they have not been granted the authority to treat total retired pay as community property.” Id. at 589 , 109 S.Ct. 2023 .

Faced with the McCarty issue under the then-new statute, the Supreme Court held in Mansell that “the [USFSPA] does not grant state courts the power to treat as property divisible upon divorce military retirement pay that has been waived to receive veterans’ disability benefits.” Id. at 594-95 , 109 S.Ct. 2023 . And in the course of explaining the differences between the two forms of benefits, the Court recognized the tax advantages of waiving retirement pay in favor of disability benefits: Members of the Armed Forces who serve for a specified period, generally at least 20 years, may retire with retired pay. The amount of retirement pay a veteran is eligible to receive is calculated according to the number of years served and the rank achieved.... The amount of disability benefits a veteran is eligible to receive is calculated according to the seriousness of the disability and the degree to which the veteran’s ability to earn a living has been impaired. ⁶²¹ In order to prevent double dipping, a military retiree may receive disability benefits only to the extent that he waives a corresponding amount of his military retirement pay.

Because disability benefits are exempt from federal, state, and local taxation, ... military retirees who waive their retirement pay in favor of disability benefits increase their after-tax income. Not surprisingly, waivers of retirement pay are common. Id. at 583-84 , 109 S.Ct. 2023 (emphasis added) (internal citations and footnote omitted). As to military pension benefits, though, the USFSPA “specifically overruled the Supreme Court with the intent to return to state law. ‘Under Maryland law, ... pensions generally, including military pensions, are marital property.’” Collins, 144 Md.App. at 422 , 798 A.2d 1155 (quoting Andresen v. Andresen, 317 Md. 380, 384 , 564 A.2d 399 (1989)). “[A] military pension shall be considered in the same manner as any other pension or retirement benefit” when determining whether property is marital property.

Md. Code (1984, 2012 Repl. Yol.), § 8-203(b) of the Family Law Article (“FL”); see also Collins, 144 Md.App. at 415 , 798 A.2d 1155 (“There is no question that a pension, or rights to a pension, are part of marital property.” (citations omitted)). Thus, a court “may transfer ownership of an interest in a pension, retirement, profit sharing, or deferred compensation plan, from one party to either or both parties,” FL § 8-205(a)(2)(i), “to the extent it was earned during the marriage,” Woodson v. Saldana, 165 Md.App. 480, 488 , 885 A.2d 907 (2005). “[T]he court has broad discretion in evaluating pensions and retirement benefits, and in determining the manner in which those benefits are to be distributed.” Id. at 489 , 885 A.2d 907 (quoting Welsh v. Welsh, 135 Md.App. 29, 54 , 761 A.2d 949 (2000)). The veteran spouse’s ability to waive retirement pay in favor of disability benefits creates opportunities for disagreements and gaming, though, especially when the election comes after the property division is finalized.

In earlier cases, we and other state courts reconciled this tension by treating the total ⁶²² military benefit as a whole. See Allen v. Allen, 178 Md.App. 145, 155 , 941 A.2d 510 (2008) (stating that the term “pension/retirement plans” included “all retirement benefits accrued as a result of appellant’s military service”); see also Bandini v. Bandini, 935 N.E.2d 253, 260-61 (Ind. Ct. App. 2010) (stating that the term “military retirement/pension plan” is broad and refers to the appellant’s retirement benefits as one unit such that, in the absence of any limiting language, it “encompasse[d] [appellant’s gross retirement pay, before any deductions for [his Survivor Benefit Plan] costs or amounts waived to receive [DVA] disability benefits”); Johnson v. Johnson, 37 S.W.3d 892, 896-97 (Tenn. 2001) (stating that where the phrase “all military retirement benefits” was undefined, it unambiguously included “all amounts to which the retiree would ordinarily be entitled as a result of retirement from the military,” including amounts waived to receive disability benefits). Although the portions of a veteran’s gross retirement pay waived to receive disability benefits may not be included in a marital award, Mansell , 490 U, S. at 594-95, 109 S.Ct. 2023 , several states’ courts have enforced agreements—in other words, kept the non-veteran spouse whole— where the veteran elected after the decree to waive all or some of a military retirement pension to receive disability benefits.

See, e.g., Bandini, 935 N.E.2d at 262, 266 ; Allen, 178 Md.App. at 155-56 , 941 A.2d 510 ; Dexter v. Dexter, 105 Md.App. 678, 680 , 661 A.2d 171 (1995);