High court rules on disability $$, alimony

QMy ex-husband recently retired from longtime service in the Army, including several tours in Iraq and other conflicts. He has just started receiving monthly military retirement benefits. In our divorce agreement, we divided everything equally, including his military retirement pay, so I now receive half of the payout directly from the government.

A friend just told me something changed in the law that might impact my ability to keep receiving my half of my ex-husband’s military retirement. Can you explain the change?

AThe change your friend is referring to is in disability pay, not retirement pay. So long as your ex remains healthy and is not eligible for disability pay, your agreement is fine as is and you will continue to receive your share.

The problem occurs if your ex becomes disabled as a result of any injuries he sustained during his time of service. At that point, he would have the right to waive some or all of his retirement benefits in favor of disability pay. He has a financial incentive to waive his retirement benefits in favor of disability benefits because of the tax treatment.

In Massachusetts, military retirement pay is not taxed at the state level, but it is taxed at the federal level. Both you and your ex have to report the income on your federal tax returns. However, if he becomes disabled as a result of certain factors, including something that occurred during an armed conflict, training exercises or by an instrumentality of war, his disability payments would be tax-free.

Under federal law, to receive disability payments, the service member must waive some or all of their military “disposable retired pay.” In some states, including Massachusetts, it used to be that if the waiver was made after the divorce, the service member would be bound by the divorce agreement and have to pay you regardless of the waiver.

Several years ago, in a case called Krapf, the Massachusetts court said the husband had unilaterally elected to make changes to his disposable military retirement income when he became disabled, which resulted in the reduction of his former wife’s share. The court found Mr. Krapf had breached his fiduciary duty to his ex-wife in making a unilateral decision that reduced her income stream.

A few weeks ago, the U.S. Supreme Court in Howell v. Howell issued a rare unanimous decision declaring 27 states, including Massachusetts, wrong. The Supreme Court said a state court cannot order a veteran to indemnify a divorced spouse for the loss of his/her share of retirement pay due to a waiver made to receive service-related disability benefits.

So, cross your fingers and hope that your ex remains healthy.