When the retiree’s pay center does not make direct payments to a former spouse, the Retiree will need to make those payments directly. There will be federal tax withheld on the entire amount that the retiree receives but, the retiree can exclude from their income any amount paid pursuant to a court order or settlement agreement. The retiree will be able to deduct these payments from their gross income and the former spouse will be liable for taxes on the shares of the pension that they received. Likewise, the former spouse should include these payments when they report their gross income.
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Military Member Support Payments
Military member support payments can be made from a number of sources, any one of which can be attached for either spousal or child support payments.
Basic, Pay, Special Pay, BAH & BAS
Active Duty Military Members receive basic pay and special pay. Basic pay is compensation which corresponds to their rank and seniority. Special pay is paid for special or hazardous duty. Military Members can also receive bonuses for various purposes. And then there is tax-free compensation known basic allowances for housing (BAH) and basic allowances for subsistence (BAS). These allowances can be increased when a Military Member has dependents. The military uses an adjusted civilian equivalency, known as “Regular Military Compensation” (RMC), to determine the actual value of the Military Member’s salary at each grade. The RMC combines basic pay, BAH and BAS, along with the tax advantage from untaxed allowances.
The Department of Defense Office of the Actuary publishes a chart which provides a more realistic and correct basis for the military member support payments. This chart compares the incomes of a Military Member and a non-military spouse.
All Pay Received is Included to Determine Military Member Support Payments
California courts have addressed the arguments that setting child support based on allowances violated the federal preemption doctrine since federal law exempts military allowances from the definition of income for federal tax purposes, and such allowances are not subject to wage garnishment for support arrears. On appeal, the court affirmed, finding the law of federal pre-emption “inapplicable to California support law,” given that “[e]ach parent should pay for the support of the children according to his or her ability,” that gross income “means income from whatever source derived,” and that “employment benefits” include “taking into consideration the benefit to the employee, [and] any corresponding reduction in living expenses. “
The United States Supreme Court addressed preemption of federal law to state that it arises when Congress has explicitly stated its intent in statutory language explained: “We have consistently recognized that the whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States. On the rare occasion when state family law has come into conflict with a federal statute, this Court has limited review under the Supremacy Clause to a determination whether Congress has ‘positively required by direct enactment’ that state law be pre-empted. Before a state law governing domestic relations will be overridden, it must do ‘major damage’ to ‘clear and substantial’ federal interests.’”
Exhaustively reviewing cases from around the country, the Supreme Court found that the nontaxable status of military allowances did not suggest that Congress had any preemptive intent with regard to either child or spousal support. Nor was the court impressed by the fact that such allowances could not be garnished. The United States Supreme Court found that the State of Tennessee could hold a military veteran in contempt for nonpayment of child support when the support was based on disability payments not subject to garnishment, and such payments were his only means for satisfying his support obligation. The Supreme Court rejected the idea that disability benefits were not subject to any legal process aimed at diverting funds for child support, including a State-court contempt proceeding, and held that the statutes merely applied to State proceedings against agencies of the United States government. As the California court noted, the purpose of those laws is “to avoid sovereign immunity problems, not to shield income from valid support orders,” citing In re Marriage of McGowan, 638 N.E.2d 695, 698 (Ill. App. 1994).
The California court therefore joined courts across the nation in holding that “federal preemption is inapplicable to military allowances such as BAH and BAS, and that such allowances are included in a party’s gross income for purposes of support when State law encompasses them.” The court held that not only did including such allowances in gross income “not do major damage to a clear and substantial federal interest,” but “to the contrary, the Department of Defense by regulation and otherwise encourages members of the armed forces to fulfill their family commitments.”
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