Federal law bars division of combat-related special compensation benefits as community property . . .
In partial reversal, Third District holds that husband’s postjudgment unilateral election to take combat-related special compensation benefits in lieu of military retirement benefits, specified in disso judgment, cannot defeat wife’s right to receive her community property share of voluntarily relinquished benefits
In re Marriage of Chapman
(September 27, 2016)
California Court of Appeal 3 Civil C079615 3 Cal.App.5 th 719, 207 Cal.Rptr.3d 798, 2016 FA 1759, per Robie, J (Blease, Acting PJ and Mauro, J, concurring). Sacramento County: Gevercer, J: affirmed in part and reversed in part. For appellant: Christopher Melcher, CFLS, (818) 591-3700. For respondent: Michael Locks, (916) 631-7575. CFLP §§L.22.214.171.124, L.33.
From July 1971 to July 1991, Phillip Chapman served in the U.S. Navy; he participated in both the Vietnam War and the Persian Gulf War. Phillip married Judy in August 1974. After he retired from the Navy in 1991, he began receiving military retirement benefits.
Phillip and Judy later separated, and in 2003, stipulated to an MSA and disso judgment. That judgment provided, among other things, that Judy would receive $475 a month for her community share of Phillip’s military retirement benefits. The trial court approved their stipulated disso judgment in April 2004. Sometime later, the Dept. of Veterans Affairs offered Phillip, who suffered from PTSD, the option of applying for combat-related special compensation benefits, which were nontaxable, in lieu of his taxable military retirement benefits. Seeking tax savings, Phillip elected to receive the special compensation and became eligible for those benefits in October 2004. He continued paying Judy $475 a month for her community share of his retirement benefits until March 2014, when he stopped paying.
Judy then filed a motion to enforce the disso judgment as related to her monthly $475 payments. The trial court found nothing in the disso judgment that gave Phillip the option of reducing or eliminating his retirement benefits in the future and ruled in Judy’s favor. It ordered Phillip to continue Judy’s monthly payments and imposed a constructive trust on his future special compensation benefits “ ‘in order to remedy the financial impact’ ” on Judy from his election.
Claiming that his special compensation benefits are not divisible community property, Phillip appealed, and the Third District affirmed in part and reversed in part.
Yes, but . . .
Phillip argued that the trial court erred by dividing his special compensation benefits because they were not considered divisible “ ‘retired pay.’ ” The justices agreed that was true, but it did not settle the question. They reasoned that military retirement payments, which derive from military service, can be divided as community property to the extent that they were earned during marriage, but there was a different rule for veteran’s disability payments. Those benefits are intended to compensate the veteran for his or her loss of earnings and earning capacity because of a service related disability. As such, the panel continued, they cannot be treated as community property and divided in a disso. The special compensation benefits at issue here, the justices concluded, are not retired pay and cannot be treated as community property.
No getting around it . . .
That did not mean, however, that Phillip could defeat Judy’s right to her community property share of his retirement benefits as set forth in the MSA and disso judgment. They noted that in In re Marriage of Stenquist (1978) 21 Cal.3d 779, 148 Cal.Rptr. 9, 1978 CFLR 1198, the Supremes held that a husband, who had the right to elect to receive disability benefits instead of retirement benefits, could not deprive his wife of her community interest in his retirement benefits by electing to do so. Similarly her, the panel continued, Phillip had every right to elect to receive the special compensation benefits instead of his taxable retirement benefits, but he could not defeat Judy’s community interest in the retirement benefits by making that election. The justices noted that he had made his election after he and Judy had separated, entered into an MSA, stipulated to a disso judgment, and had the trial court approve that judgment. Moreover, there was nothing in the MSA and disso judgment giving Phillip the right to “unilaterally reduce or eliminate the retirement asset by his voluntary waiver sometime in the future.” As the panel saw it, the lower court had not divided the waived military retirement benefits, but rather, had enforced the disso judgment by ordering Phillip to pay Judy the $475 a month for her community interest in those benefits from other funds. Accordingly, they affirmed that order.
An invalid construction . . .
Phillip also argued that the trial court erred by imposing a constructive trust on his special compensation benefits. The justices agreed with that too. They pointed out that a constructive trust is an appropriate remedy where one party has acquired property through wrongful conduct. Here, Phillip had made a valid election to receive the special compensation benefits; he had not acquired them through wrongful conduct. Thus, they reversed that order and remanded for the lower court to fashion a lawfully available and appropriate equitable relief, in order to secure Judy’s right to her monthly payments.
This case contains an important reminder about how and when a trial court may impose a constructive trust. However, it is more concerned with the difference between the treatment of retirement funds and disability payments to servicemembers. Where, as here, the retired servicemember chooses disability payments after having received retirement benefits, he or she cannot cut off the other spouse’s entitlement to a share of the retirement benefits contracted for in the MSA. It appears that Philip hoped that his election would yield more than just tax benefits. He was wrong. He’ll still have to pay Judy what he was required to pay her before. Just from other funds.