In a military divorce, the Survivor Benefit Plan (SBP) can play a major role. To protect a surviving former spouse's share of military retirement,
divorce courts can require a servicemember to elect former spouse SBP coverage.
Without SBP, if the retiree dies, the military retirement stops as well. You can think of the SBP as an insurance policy, focused on protecting a survivor's income flow from the military retirement if the retiree dies first. It has a premium, and a payout in the form of a monthly payment from DFAS.
This post will discuss the basic outline of the program; later posts will discuss its applicability in divorce proceedings.
First, we need to answer some questions about eligibility and election: What categories of persons are eligible for coverage under SBP, and how is the decision made?
The following are eligible to receive SBP are spouse; spouse & children; children only; former spouse, former spouse and children; or persons with an "insurable interest." Grandchildren eligible for coverage under the SBP Program, but only if documentation can be provided that substantiates that the grandchildren live with and are supported by the military grandparent (this situation can become very technical). A person with an insurable interest is someone whom an unmarried retiree might want to provide for, i.e. a relative (including dependent children) or other person who could be hurt financially if the retiree dies.
Your nonmilitary spouse can veto your election should you elect to not participate in SBP or elect not to participate at the maximum level. Every retiring member is automatically enrolled in SBP for full coverage unless the spouse consents in writing to reduced coverage or no coverage.
The election you make prior to retirement is irrevocable after you retire. So if, as an eligible SBP participant, you elect not to participate (with your spouse's consent), you cannot participate at a future date subsequent to retirement. Similarly, if you choose children-only coverage. you cannot change your mind and elect spouse coverage in the future. Even if your spouse predeceases you and you remarry, the new spouse can never be covered under the plan. And the reverse is also true: if you choose spouse-only coverage, you cannot elect child(ren) coverage in the future, even if your spouse predeceasesyou. If, however, you did not have any dependents when you retired, but have married since then, your spouse is eligible for SBP coverage. Application must be filed with your DFAS within one year of the date you were married.
What if you and your spouse are a double military retirement couple, and both of you are (or soon will be) eligible for retirement? If you have children, generally, you should elect child-only coverage. However, each situation in this category of marriage must be considered individually.
Another tricky situation arises when you have elected SBP coverage for a mentally incapacitated child. Generally speaking, you should have a court-appointed guardian designated (this can be your spouse/former spouse). It is not strictly speaking required, but it will greatly facilitate dealing with the bureaucracy, because federal policy strongly prefers a court appointed guardian. The Comptroller-General consistently has held such SBP payments should be made only to a court-appointed guardian when he annuitant is incapable of managing his or her personal financial affairs. However, Section 654 of P.L. 102-190, enacted on Dec. 5, 1991, authorizes the Department of Defense, like other federal agencies, to pay an annuity due to a minor or incompetent survivor of a military retiree under the RSFPP or the SBP to a representative payee, without requiring the payee to be appointed by a court. Guidance from the DFAS implementing this law includes (but is not restricted to) the following:
- An annuity may be paid to a third party on behalf of an incapacitated annuitant only if the third party has been appointed as guardian, custodian or other fiduciary pursuant to a state court order or has been designated a representative payee.
- The SBP/SSBP annuity due a minor, mentally incompetent or otherwise legally disabled person for whom a guardian or other fiduciary has not been appointed may be paid to a representative payee who, in the judgment of the service secretary concerned, is responsible for the annuitant's care. The representative payee is required to spend or invest the amount paid on behalf of the annuitant solely for the benefit of the annuitant. This includes any SBP/SSBP payable to the spouse or former spouse annuitant. The representative payee must certify that SBP (and SSBP, if applicable) payments received on the annuitant's behalf are used for the annuitant's benefit.
- An annuitant is determined to be incompetent if the service secretary concerned receives an actual determination of incompetence made either by a state court or by a physician or psychologist. A representative payee will not be established solely on the basis of a letter request from a third party that an annuitant is incapable of handling financial affairs.
- If a court order provides for payment of a fee to the representative payee or if the service secretary concerned determines that payment of a fee is necessary in order to obtain the fiduciary services of a representative payee, a monthly fee will be allowed. In such circumstance, a fee of 4 percent of the monthly SBP/SSBP annuity will be allowed, unless a court order dictate a less fee. In the case of a spouse or former spouse annuitant, the fee will be no more than 4 percent of the adjusted annuity - gross annuity less any DIC or Social Security offset reduction. Any court order that provides for a fee in excess of 4 percent shall be limited to 4 percent.
- In cases where it appears necessary to protect the annuitant, the service secretary concerned may require the payee to provide a surety bond in an amount sufficient to protect the interest of the annuitant. The representative payee may pay for such bonds out of the SBP annuity.
- The representative payee shall be required to maintain and, upon request by the service secretary concerned, provide a periodic accounting of expenditures and investments of amount give to the payee. If the representative payee is a close family member or a government or financial institution, this periodic accounting will not be required.
If you are facing these issues, get an experienced and aggressive Phoenix divorce lawyer on your side.
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