Facts: After 15 years of marriage, Husband and Wife signed a marital dissolution agreement that divided the marital portion of Husband’s military retired pay.

The MDA also reflected their agreement that, upon his retirement, Husband would pay Wife alimony in futuro in an amount equal to Wife’s portion of his military retired pay and would receive a dollar-for-dollar setoff for any amount Wife received from his military retired pay. Notably, the MDA said: “Both parties acknowledge that [the alimony in futuro award] is intended solely to protect Wife’s portion of Husband’s military retired pay in light of the Supreme Court’s holding in Howell v. Howell.”

The trial court approved the agreement. Husband retired from the military one year later.

A year after Husband’s retirement, Wife petitioned to hold Husband in civil contempt for not paying alimony in futuro per the MDA. Husband argued the MDA is unenforceable because it requires Husband to reimburse Wife against a reduction of his military retired pay caused by his obtaining VA disability benefits, which are not subject to state law. Husband argued the MDA violates federal law.

The trial court found Husband violated the MDA, awarded Wife an $8478.65 judgment for the arrearage, and awarded Wife $6500 for her attorney’s fees.

Husband appealed.

On Appeal: The Court of Appeals affirmed the trial court.

Some background information will be helpful.

Tennessee courts may treat military retired pay as marital property and divide it between spouses in divorce cases. But, per federal law, Tennessee courts cannot divide or allocate a military retiree’s disability benefits.

Military retired pay differs from service-connected disability benefits. A military retiree may receive disability benefits only if they waive the same amount from their military retirement pay. Because disability benefits are exempt from federal and state taxes, military retirees who waive their retirement pay for disability benefits increase their after-tax income. Thus, waivers of retirement pay are common.

For example, suppose a military retiree receives retired pay of $1000 a month and is later offered disability benefits of $500 a month. In that case, the retiree can waive $500 of retirement pay and instead receive $500 in disability benefits, thus reducing the military retired pay benefit by $500. If that military retiree has an ex-spouse who receives 25% of the military retired pay benefit, the retiree’s disability election reduces the ex-spouse’s benefit from $250 (25% of $1000) to $125 (25% of $500).

Here, the parties considered what would happen if Husband became eligible for disability benefits and chose to waive his retirement benefits so he could receive disability benefits. They agreed that, if that were to occur, Husband would pay Wife alimony in futuro in whatever amount she lost. Using the example in the paragraph above, Husband would pay alimony of $125 per month to reimburse Wife for her loss of $125 resulting from Husband’s election to receive disability benefits.

In 2017, the U.S. Supreme Court decided Howell v. Howell. The Court held that a state court may not treat disability benefits as marital property or order a military retiree to provide dollar-for-dollar indemnity or reimbursement of the lost amount once a former spouse’s share of retirement is reduced because of a retirement pay waiver.

The Howell opinion did not define how its holding might affect alimony awards but mentioned that state courts may consider the possibility of future retirement waivers “when they calculate or recalculate the need for spousal support.”

Some states concluded that although Howell prohibits their courts from ordering postdivorce indemnification or reimbursement because of a retirement waiver, it does not prohibit the retiree from agreeing to future indemnification in a negotiated settlement.

Other states have concluded that federal law preempts even negotiated settlements where the military spouse agrees to indemnify the nonmilitary spouse in the event of a future retirement waiver.

Tennessee has not weighed in on that issue—until now.

In a case of first impression, the Court concluded the MDA in this case is enforceable:

We reach this conclusion for several reasons. First, we are persuaded by the line of cases from other jurisdictions interpreting Howell as inapplicable to negotiated agreements as opposed to court orders. We agree that nothing in Howell suggests that service members cannot determine on their own, without court intervention, how to spend their future disability pay. To understand Howell as meaning that a service member may not agree to pay alimony out of his or her own disability pay is an overbroad and paternalistic reading of that case….

In any event, the present case is further distinguishable from Howell … because it deals with alimony as opposed to divisible marital property. Howell specifically provides that one remedy available to military spouses is that trial courts may consider the possibility of future waivers when calculating or recalculating “the need for spousal support.” Here, the parties capitalized on this remedy by agreeing to the automatic spousal support modification ahead of time, thus saving both Husband and Wife, as well as the trial court, the time and expense of returning to court once Husband waived his retirement in favor of disability…. Husband takes issue with the fact that the MDA provides that a retirement waiver warrants an alimony modification and requires him to pay alimony in futuro in an amount equal to the amount of retirement pay to which Wife was entitled under the MDA…. Under Husband’s proposed reading of Howell, then, former military members and their ex-spouses would have to relitigate alimony in every event of retirement waiver. Insofar as the spirit of Howell is to balance protection of veterans’ finances with the financial well-being of their former spouses, we are unconvinced by Husband’s proposed interpretation.

Finally, Husband raises his issues with the relevant MDA provision several years after the unappealed divorce decree became a final order. However, the parties were well aware of Howell when negotiating the MDA. Husband testified at the contempt hearing that Howell and the possibility of a retirement waiver was thoroughly discussed during settlement negotiations and that the alimony in futuro provision was added, with Husband’s agreement, to ensure Wife’s security…. Stated simply, Husband agreed to the provision at issue knowing that, pursuant to Howell, there was a question as to whether the trial court would have been able to order such a provision. Husband then waited until it suited him nearly three years later to argue that federal law preempts the parties’ agreement.

Under such circumstances, we cannot abide Husband’s argument. On a practical note, finding in favor of Husband promotes a public policy encouraging current and former service members to negotiate MDAs in bad faith, only to later waive their retirement pay and renege on an otherwise valid contract years later. Such a policy makes little sense in light of Howell’s clear acknowledgment that divorce courts may consider the possibility of retirement waivers when determining spousal support issues.

The Court affirmed the trial court’s ruling on Wife’s motion for civil contempt. Wife was also awarded her reasonable attorney’s fees on appeal.

Source: Hammond v. Hammond (Tennessee Court of Appeals, Middle Section, August 22, 2023).

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