The NC Court of Appeals acknowledged that military disability pay cannot be distributed by a court in equitable distribution, It is seen as income that can be considered when the court is looking for a source of payment. In reaching this decision, the court rejected the argument that this rule was changed by the recent decision in Howell v. Howell by the US Supreme Court. Where the Court reiterated that federal law prohibits the distribution of military disability in equitable distribution.
Military Disability Pay Cannot be Distributed in ED
The federal Uniformed Services Former Spouses’ Protection Act (USFSPA) authorizes states to treat veterans’ retired pay as property which is divisible upon divorce. Therefore, federal law prohibits the distribution of military disability benefits in equitable distribution proceedings. Military disability pay is the separate property of the veteran.
Retirement Can Be Converted to Disability
Unless a retired service member qualifies for concurrent pay, a service member cannot receive both disability pay and retirement pay. This means that many service members must waive their retirement pay in order to receive the disability pay. Many disabled service members decide to change their retirement pay to disability pay when they become eligible, because disability pay is not taxed and cannot be distributed in divorce proceedings.
A service member can waive retirement for disability at any point after a service member becomes entitled to receive disability pay. If the conversion occurs before a court enters an order for equitable distribution, the court can consider the disability payments as a distributional factor, but the court cannot give dollar-for-dollar “credit” in the distribution to make up for any retirement pay lost because of the conversion.
When this conversion occurs, the amount of retirement pay received by the former spouse of the service member generally is reduced. A trial court may not prohibit a service member from converting retirement pay to disability pay in the future.
However, North Carolina appellate courts as well as appellate courts in other states have held that federal law does not restrict the ability of a state court to enforce a judgment dividing military retirement pay entered before a service member converted the retirement pay to disability pay. Therefore, amendments to retirement distribution orders made by trial courts to initiate the terms of the court order have been approved.