Military disability retired pay is not divisible as a property in a divorce, but Concurrent Retirement and Disability Pay (CRDP) now can be divided as a property. If a retiree is eligible to, and elects, VA disability payments, which are non-taxable, the member must waive an equal amount of disability retired pay, which is taxable. CRDP restores the amount of waived retired pay. The Defense Finance and Accounting Service (DFAS) has long held that CRDP is also non-divisible, but the Defense Department Claims Appeal Board (CAB) has ruled that it is divisible as property in a divorce.
On March 1, 2022, CAB rendered a Reconsideration Decision in Claims Case No. 2016-CL-091608.3 https://doha.ogc.osd.mil/Claims-Division/DOHA-Claims-Appeals-Board-Decisions/2022-DOHA-Claims-Appeals-Board-Decisions/FileId/168697/. The case holds that the Uniformed Services Former Spouses’ Protection Act (UCFSPA) allows CRDP paid to a disability retiree to be divided as property in a divorce case, since it is a restoration of retired pay based on longevity, which is 20 years of service, not a restoration of disability retired pay.
It is important to understand the tax ramifications. When CRDP was not divisible as property in a divorce, the alternative was to garnish it as alimony. The garnishment is not taxable to the former spouse and is not deductible to the member. Thus, the member is paying the taxes on the former spouse’s alimony. Although DFAS would accept an alimony garnishment, DFAS would not adjust it for COLA.
Now that CRDP is divisible as a property settlement, the pension division payments to the former spouse are taxable to the former spouse and excludable from the member’s taxable income. The benefit to the former spouse is that it can be adjusted for COLA.