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holding "a military ex-spouse's post-decree election to waive some or all of a military pension in order to collect veterans' disability benefits constitutes a 'unilateral[] and extrajudicial []' modification of the decree."
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No. 4-272 / 03-1731
August 11, 2004
Appeal from the Iowa District Court for Scott County, Bobbi M. Alpers, Judge.
James Gahagen appeals from the trial court's denial of his motion to modify an order dividing his military pension following the dissolution of his marriage to Mary Ann Gahagen. AFFIRMED.
Christine Frederick of Zamora, Taylor, Alexander, Woods Frederick, Davenport, for appellant.
Kathleen Bailey of Coyle, Gilman Stengel, Rock Island, Illinois, for appellee.
Considered by Sackett, C.J., and Huitink and Miller, JJ.
James Gahagen appeals from the trial court's denial of his motion to modify an order dividing his military pension following the dissolution of his marriage to Mary Ann Gahagen. He contends the order grants Mary Ann a portion of his veterans' disability benefits in violation of the United States Code and Supreme Court precedent. We affirm.
I. BACKGROUND FACTS AND PRIOR PROCEEDINGS.
James joined the United States Army on May 20, 1982 and was still an active member at the time of the order appealed from here. James and Mary Ann were married on September 25, 1982. James filed a petition for dissolution of marriage on June 22, 2001. Following a hearing on the contested issues, the trial court entered findings of fact and conclusions of law on December 21, 2001 and a decree of dissolution on January 3, 2002. In its findings of fact the court found that each party had contributed to pension or retirement funds during the period of their marriage. In the decree the court ordered that the portions of the parties' "pension and retirement funds which have accrued during the parties' marriage, shall be divided equally between the parties by an appropriate QDRO Order" to be prepared by Mary Ann and submitted to the court. Such order would of course include any pension or retirement benefits James will receive when he retires from the Army.
A contested hearing was held on Mary Ann's claim for distribution of James's military retirement benefits pursuant to the dissolution decree, and the trial court entered a "Military Pension Division Order" on December 20, 2002. The court ordered that effective upon James's retirement from the Army he pay Mary Ann fifty percent of the marital share of his "disposable retired pay each month." The Court defined the martial share as "a fraction made up of 228 months of marital pension service, divided by the total months" of James's military service. The court further ordered that
If [James] receives disability pay or civil service income and this event causes a reduction of [James's] disposable retired pay, thus reducing [Mary Ann's] share thereof, [James] will pay to [Mary Ann] directly each month any amount that is withheld from [Mary Ann] by DFAS for the above reason.
In addition, the order stated, "It is intended that [Mary Ann] shall receive her full share of [James's] military retired pay, calculated as set out below and without reduction for civil service income, disability pay or any other reason."
On July 18, 2003, James filed a "Motion to Modify Military Pension Division Order," requesting that the order be "modified to delete any award to [Mary Ann] of any portion of the amount waived" by him in order to receive veterans' disability benefits. James argued the order violated the federal Uniformed Services Former Spouses' Protection Act (USFSPA), 10 U.S.C. § 1408 (2002), and the United States Supreme Court's decision in Mansell v. Mansell, 490 U.S. 581, 109 S. Ct. 2023, 104 L. Ed. 2d 675 (1989), because it granted Mary Ann a portion of his veterans' disability benefits. The trial court denied James's motion, concluding that although the order required him to indemnify Mary Ann if he were to receive disability pay, thus reducing her share of James's disposable retired pay,
James filed this motion pursuant to Iowa Rule of Civil Procedure 1.1012. Upon our review of this rule it does not appear any of the grounds listed for such a motion are applicable here. However, we do not address this question because the parties do not raise the issue, nor was it presented to or passed upon by the trial court.
The order does not require that [James] indemnify [Mary Ann] with his disability pay. [James] may satisfy this amount with any available assets. Accordingly, the court finds the Military Pension Division Order does not violate USFSPA or the United States Supreme Court's decision in Mansell. II. MERITS.
James appeals from the trial court's denial of his motion to modify the military pension division order, contending the court erred in ordering him to pay over to Mary Ann monies in the amount deducted from his military retirement pay for his disability benefits, thus violating the USFSPA and Mansell.
All of the proceedings in this dissolution of marriage action were filed and pursued in equity, so our review would ordinarily be de novo. See Iowa R. App. P. 6.4 ("Review in equity cases shall be de novo."); In re Marriage of Jones, 653 N.W.2d 589, 592 (Iowa 2002) ("Our review of dissolution-of-marriage cases is de novo."). However, no facts are in dispute and the parties' disagreement involves interpretation and application of a federal statute, and involves the trial court's construction of its own decree and order. Our review is thus for the correction of errors at law. See Benton v. Slater, 605 N.W.2d 3, 4 (Iowa 2000) (holding, in equity action, that although review would ordinarily be de novo, where no facts were in dispute and sole question was whether district court properly applied the law, review was for correction of errors at law); In re Marriage of Carr, 591 N.W.2d 627, 628 (Iowa 1999) (holding that although review of actions concerning support orders is ordinarily de novo, because the appeal involved undisputed facts and statutory interpretation, review was for correction of errors at law); State v. Eickelberg, 574 N.W.2d 1, 3 (Iowa 1997) ("Issues of statutory interpretation and application are reviewed for errors at law."); Sorensen v. Nelson, 342 N.W.2d 477, 479 (Iowa 1984) (concluding, in dissolution of marriage case, that where parties had agreed no facts were in dispute construction of a stipulation and decree was a matter of law); Serrano v. Hendricks, 400 N.W.2d 77, 78-79 (Iowa Ct.App. 1986) (approving parties' agreement that where no facts were in dispute construction of a dissolution decree was a matter of law).
As set forth above, James has been a member of the Army since 1982. Members of the Armed Forces who serve for a specified period may retire with retired pay. Mansell, 490 U.S. at 583, 109 S. Ct. at 2025, 104 L. Ed. 2d at 681. Veterans who become disabled as a result of military service are eligible for disability benefits. Id. at 583, 109 S. Ct. at 2026, 104 L. Ed. 2d at 681.
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. at 2026, 104 L. Ed. 2d at 682(citations omitted).
The USFSPA authorizes state courts to treat disposable retired pay as marital property. 10 U.S.C. § 1408(c)(1). In Iowa military pensions are considered marital property and divided as such in dissolution proceedings. In re Marriage of Howell, 434 N.W.2d 629, 632 (Iowa 1989). The United States Supreme Court recognized in Mansell that while the USFSPA gives state courts the authority to divide disposable retired pay, section 1408(a)(4)(B) of the act explicitly excludes disability payments from the definition of disposable retired pay. Abernethy v. Fishkin, 699 So.2d 235, 238-39 (Fla. 1997) ( citing Mansell, 490 U.S. at 589, 109 S. Ct. at 2028-29, 104 L. Ed. 2d at 685). Accordingly, the Court in Mansell held 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." Mansell, 490 U.S. at 594-95, 109 S. Ct. at 2023, 104 L. Ed. 2d at 689.
The Iowa Supreme Court has also held that veteran's disability payments are not the same as a military pension and are not divisible or assignable. Howell, 434 N.W.2d at 632-33. The court in Howell held that while veterans' disability benefits may be considered in the equitable granting of alimony or support, this type of payment may not be considered marital property to be divided. Id. at 633.
Thus, it is clear that under the USFSPA and Mansell a state court may not treat military retirement pay that has been waived to receive veterans' disability benefits as divisible property in a dissolution proceeding. The issue that arises in this case is whether, after granting the military ex-spouse fifty percent of the marital share of the disposable retired pay in a decree, the trial court can then order the military ex-spouse to indemnify the nonmilitary ex-spouse if in the future the military ex-spouse receives disability pay that causes a reduction of the nonmilitary ex-spouse's share of the retired pay.
This appears to be an issue of first impression in Iowa. However, a number of other states have dealt with this or a very similar issue in a variety of ways, depending upon the facts presented and relevant state law. In some states the rules of civil procedure allow the property division provisions of a dissolution decree to be modified under "extraordinary circumstances" or "exceptional and compelling circumstances." See Clauson v. Clauson, 831 P.2d 1257, 1261 (Alaska 1992) ("extraordinary circumstances"); Torwich v. Torwich, 660 A.2d 1214, 1216 (N.J.Super.Ct. App. Div. 1995) ("exceptional and compelling circumstances"). In each of these cases the court determined that the military ex-spouse's election to waive pension benefits in order to collect disability benefits, thereby unilaterally decreasing the nonmilitary ex-spouse's share of the pension awarded in the decree, met the state's criteria for modification of the property settlement to compensate for the nonmilitary ex-spouse's loss.
In cases in which the language of the decree has been construed to be simply a "dollar-for-dollar division and distribution" of disability benefits courts have determined that federal law, as interpreted in Mansell, is violated. In such circumstances it is irrelevant whether the division and distribution are implemented by awarding part of the future income stream that is the pension itself, by finding present value and making an offsetting award of other assets, or by awarding "maintenance." See, e.g., Perkins v. Perkins, 26 P.3d 989, 994-95 (Wash.Ct.App. 2001) (finding that language in decree stating the wife is "`entitled to 45% of the . . . husband's . . . military retirement' even `[i]f the husband's military retirement [pension] . . . is . . . changed in form to a disability payment'" was in violation of federal law despite fact the court called it "maintenance").
Several states have upheld language very similar to the challenged language here, language requiring the military ex-spouse to pay an amount equal to any reduction in the nonmilitary ex-spouse's share of the military retirement pay when that reduction is caused by the military ex-spouse's election to waive retirement pay in favor of receiving disability benefits. Such language has been upheld as long as it does not specifically order the military ex-spouse to pay the "make-up" amount out of, or divide in any way, his or her disability benefits.
In Abernethy the Florida Supreme Court upheld provisions in a decree incorporating a settlement agreement providing the nonmilitary former wife with one-fourth of the military former husband's retirement pay and prohibiting him from pursuing any course of action which would defeat his former spouse's right to receive her allotted portion of his retirement pay, and required him to indemnify her for any breach in this regard. Abernethy, 699 So.2d at 236-37. The court noted that the agreement did not expressly provide for a division of disability benefits as the agreement in Mansell had. Id. at 239. Accordingly, the court concluded that while federal law prohibits the division of disability benefits, it does not preclude an award to the nonmilitary ex-spouse of a set portion of the military ex-spouse's retirement pay, or an indemnification provision ensuring such payments, provided the indemnification provision does not require the indemnification be paid from the disability benefits. Id. at 240. See also In re Marriage of Strassner, 895 S.W.2d 614, 618 (Mo.Ct.App. 1995) (upholding similar provision in a decree, finding that the court had discretion to protect ex-wife's right to receive property and the decree did not specify an improper source of funds for indemnification).
More recently, the Illinois Court of Appeals also addressed a similar issue in In re Marriage of Nielsen Magrini, 792 N.E.2d 844 (Ill.App.Ct. 2003). There the parties entered into an agreed order awarding the nonmilitary former wife twenty-five percent of the retired pay of her military former husband who had not yet retired from the military. Several years after he retired the former husband was adjudged to be sixty percent disabled, increasing his disability benefits but decreasing his retirement pay by sixty percent from what it had been at the time he retired. Nielsen, 792 N.E.2d at 845-46. His former wife's monthly check reflecting her twenty-five percent share of his retirement pay was reduced accordingly. Id. at 846. She filed a petition seeking to enforce the earlier agreement, alleging she was not receiving the full amount to which she was entitled under the agreement. Id. The trial court ruled she was entitled to an amount worth twenty-five percent of her former husband's military pension as it existed on the date he retired. Id. The former husband appealed, alleging the trial court erred in awarding the former wife a portion of his disability benefits in violation of the USFSPA and Mansell. Id. The Illinois Court of Appeals ruled that the former wife was entitled to an amount equal to twenty-five percent of the military pension as it existed on the date he retired and that because the trial court's order did not directly assign the former husband's disability pay it did not offend Mansell. Nielsen, 792 N.E.2d at 849. However, the court also held that the former husband must be able to satisfy the obligation with a source of funds other than his disability benefits. Id. Thus, the court remanded the case for the trial court to determine if he was able to satisfy his obligation with assets other than his disability benefits in order to ensure conformity with Mansell. Id.
At all times relevant to this appeal James remained in military service. Nothing in the record before us indicates that he had made or sought to make an election to waive any military retirement pay in favor of receiving veteran's disability benefits. Nor does the record indicate that he was yet eligible to make such an election, even if qualified to do so by some undisclosed disability. Under such circumstances any remand to the trial court to determine if James is able to satisfy his obligation with assets other than disability benefits would serve no purpose at this time.
We agree with the Alaska Supreme Court that a military ex-spouse's post-decree election to waive some or all of a military pension in order to collect veterans' disability benefits constitutes a "unilateral and extrajudicial" modification of the decree. See Clauson, 831 P.2d at 1261. Such action results in the nonmilitary ex-spouse being deprived of benefits granted by the dissolution decree. It would seem that as a matter of equity under such circumstances the nonmilitary ex-spouse should be entitled to some relief. Under Iowa law, "absent fraud, duress, coercion, mistake, or other similar grounds which would support modification of an ordinary judgment, property settlements in dissolution decrees are not subject to modification." In re Marriage of Trickey, 589 N.W.2d 753, 756 (Iowa Ct.App. 1998). Therefore, relief in situations such as in this case cannot occur through modification of the decree's property division.
We agree with the result reached by courts in cases such as Abernethy and Nielsen, under the circumstances presented in those cases and subject to the limitations imposed in those cases. We find their approach well reasoned and also consistent with Iowa law concerning modification of property division. Because the relevant facts in this case are legally indistinguishable from those in Abernathy and Nielsen, we also find the result reached in those cases available, applicable, and appropriate in this case. Here, as in those cases, the December 20, 2002 order does not expressly provide for the division or assignment of any veterans' disability benefits that James might receive. Instead, the order simply requires that James pay Mary Ann a "make-up" amount equal to any reduction in her monthly share of his retirement pay which is caused by his election to reduce his retirement pay by receiving veterans' disability benefits or civil service income.
We find no error in the trial court's construction of the language "any amount that is withheld . . . for the above reason," which appears in the December 20, 2002 order, as meaning simply an amount equal to the amount of any reduction in Mary Ann's share of the military pension payments caused by James receiving veterans' disability benefits or civil service income, and not as meaning or requiring that James indemnify Mary Ann with or from any veterans' disability benefits he might receive.
In ruling on James' motion the trial court quoted the following language from Abernathy, 699 So.2d at 240:
[W]hile federal law prohibits the division of disability benefits, it does not prohibit spouses from entering into a property settlement agreement that awards the non-military spouse a set portion of the military spouse's retirement pay. Nor does it preclude indemnification provisions ensuring such payments, so long as veterans' disability benefits are not the source of such payments.
This language almost immediately follows a sentence in which the Abernathy court stated: "Abernathy could pay Fishkin with any other available assets and, consequently, we conclude the final judgment did not violate Mansell." See id. Based on this reliance by the trial court on Abernathy, we are convinced that in ruling on James's motion the trial court construed its December 20, 2002 order as requiring James to pay the "make-up" amount only if and to the extent he is able to do so with a source of funds other than any veterans' disability benefits. We find no error in this construction by the trial court of its own, earlier order.
When there are two possible constructions of a legislative enactment, we will adopt the one that will not render the act unconstitutional. Bevel v. Civil Service Comm'n, 426 N.W.2d 380, 382 (Iowa 1988). Similarly, where there are two possible constructions of a dissolution decree we thus should adopt the one that does not violate federal law.
Because the trial court's challenged order requires James to meet his obligation to pay any "make-up" amount only if and to the extent he is able to do so with a source of funds other than any veterans' disability benefits, the order does not violate federal law.
III. CONCLUSION.
We conclude the trial court did not err in determining that the military pension division order does not require James to indemnify Mary Ann with his veterans' disability benefits, and requires him to pay any "make-up" amount only if and to the extent he is able to do so with a source of funds other than his veterans' disability benefits. Accordingly, we do not find the order to be in violation of the USFSPA or Mansell. We therefore conclude the trial court did not err in denying James's motion to modify the military pension division order.