The DFAS Military Divorce 10 Year Rule
Should the DFAS 10 Year Rule be Changed?
When we discussed service members claiming alimony on their tax returns, we mentioned how the book, Military Divorce Tips recommends that DFAS pay the former spouse portion of the division of military retired pay.
For DFAS to make this payment, the 10/10 rule applies, which means:
- The marriage must have existed for a minimum of 10 years and
- At least ten years of marriage must overlap with 10 years of credible service
When the 10/10 rule is not met, DFAS will not make the payment and the service member must make the payment to the former spouse.
There are a few reasons this is not ideal:
- DFAS will issue a Form 1099-R for the service member for the entire amount of retirement pay which can leave the service member responsible for all the applicable taxes
- When service members make the former spouse payment, service members might think they should claim the former spouse portion as alimony paid on their tax return
- If service members record the former spouse portion as alimony, the perception is that it actually is alimnoy, where as the divorce decree already declared it property by using the USFSPA
- Service members paying former spouses (whether by check or direct allotment) adds to the perception that the service member is SUPPORTING the former spouse
Should DFAS always pay the Former Military Spouse?
If DFAS were permitted to make all payments to the former military spouse — regardless of length of marriage, these issues would disappear.
- DFAS could issue a Form 1099-R to both the service member and former military spouse (as it currently does for marriages meeting the 10/10 rule)
- There would be no confusion concerning alimony on tax returns. The service member and former spouse would always each receive a Form 1099-R and report the amount under income, pensions received.
- Perceptions of the service member “supporting” the former military spouse might change
- Communication would be reduced between service member and former spouse, allowing both to move forward with their lives.
As of today though, if a marriage does not meet the 10/10 rule, then DFAS cannot make the payment and the service member will have to make arrangements to pay the former spouse.
In these cases, the best answer is for the service member to set up an allotment through DFAS to pay the former spouse directly. This ensures timely payments will continue regardless of the service members location, medical issues, or emergencies, and no one has to worry about a check lost in the mail.
Taxes and Divorce
When couples have a pending divorce, it’s easy to forget or overlook the tax impact. Couples should also take a look at their Will to see if anything needs revision. These items may help:
FOr DFAS to refuse to pay you direct, you must not have had a ten-year overlap with his service time. Your ex is screwing himself on taxes by not sending you the ordered amount. Regardless of your state rules, federal Tax law has determined that a division of military retired pay to a former spouse paid either by the member or DFAS constitutes alimony and is DEDUCTIBLE to the payer and taxable income to the recipient. YOu should check your “state” tax laws – you may find that alimony is deductible/claimable !
When it is NOT Alimony, it cannot be considered ALIMONY. It is considered PROPERTY. My former spouse is the one receiving the entire military retirement pay and he’s order to give me a certain percent. However, DFAS will only issue him the 1099 because the will not pay me direct and they will not issue me a 1099 because they have no clue if he is or isn’t paying me or the amount. He is being taxed on the full amount and is claiming the income on his taxes and uses his 1099. It would be double taxation if I am taxed on it and I cannot deduct it or get a 1099 from him for the division of property. We are not entitled to alimony according to our rules in our state. It is considered property and it would be the equivalent of him giving me a chair every month. I can’t claim a chair on income taxes. It is NOT a pension or a 401k.
Please note that all the “ride-along ads” with this blog that offer to “buy out your Pension” should be disregarded as military retired pay is NOT a “pension” – military retired pay is reduced current pay – taxable income – for reduced current service.
The suggestion that DFAS will issue a 1099-R for the full amount of retired pay to the military retiree is sheer brain dead assumption. Back in 1991, the IRS directed DFAS to issue separate 1099’s for the EXACT amount of payments made to each recipient, specifically to prevent more tax filing problems with who pays the income tax on the partitioned retired pay. Every recipient will have their separate income reported to the IRS by 1099-R. The problem of the retiree getting charged with the full amount of retired pay caused the IRS to direct DFAS to stop using Form W-2P and start using Form 1099-R to report both retiee and former spouse payments. One must be carefully and fully researched before making unfounded emotional assumptions on these public forums that cause further problems ! ! !
RE: “Every recipient will have their separate income reported to the IRS by 1099-R.”
The discussion is about cases not meeting 10/10 year rule; where DFAS does not pay the former military spouse. You’re statement implies that DFAS will cut a 1099-R to each recipient even when DFAS is not paying the former spouse. DFAS can’t cut a 1099R for something it didn’t pay.
Sorry – I should have been a bit clearer –
Yes, obviously, DFAS can’t issue a 1099-R for money they don’t pay; however, it stands to common sense that the IRS directed them to report separate payments to each recipient, – – – in only the cases where they maintain the court order for garnishment on the acceptible “over 10-year” service/marriage overlaps !
But, the IRS has also stated that anyone making direct to recipient alimony type payments – and the IRS has determined that USFSPA payents ARE ALIMONY – can deduct those total payments from their gross income by reporting the recipient’s social security number with the annual amount. Then the IRS will be looking for the recipient to claim that amount on their tax return.
Until the USFSPA is fully repealed, yes, the “10-year” rule MUST be dropped and ALL USFSPA payments should be made by DFAS garnishment orders. The IRS has deemed that USFSPA payments in fact, ARE ALIMONY and ARE deductible to the payor and ARE taxable income to the recipient. In requiring ALL USFSPA payments to be made by DFAS, it will give a true picture of exactly how many military retirees are being financially raped by the covert, unconstitutional USFSPA. THe USFSPA gave courts the “King Midas” touch – they have judicial alchemy ability and turn income into property for partitioning then back into income for tax liability to the former spouse. The USFSPA clearly states that these former spouse payments are NOT payments for military service and cannot be treated as such. There are 26 states with state income taxes that grant full or partial exemption to legitimate military retirees living in those states. Any state income tax department which allows former spouses to use that state tax law exemption privilidge extended only to honest military retirees to exempt their USFSPA payments is losing MILLIONS of dollars in state income tax revenue by allowing former spouses to fraudulently make this income deduction from their state tax returns, as if they were the actual military retiree !
Re: “The IRS has deemed that USFSPA payments in fact, ARE ALIMONY and ARE deductible to the payor and ARE taxable income to the recipient.”
When you have time, please share your IRS source/reference on this. I think it would be helpful because military spouses who receive a 1099R report it under income on the “Pensions and Annuity” line, not the “Alimony” line of the IRS Form 1040. (With your source, we might discuss this further in a separate post.)
This is NOT legal advice nor am I a lawyer – I’m answering a question for my source of my info.
The reference is US Tax Court – 129 TC 12, 10 Oct 2007, Proctor v. IRS Commissioner.
As to the 1040 line number to claim Former Spouse Payments, the USFSPA specifically says in sub-sub-paragraph 10 USC 1408 (c)(2), “Payments by the Secretary concerned under subsection (d) to a spouse or former spouse with respect to a division of retired pay as the property of a member and a member’s spouse or former spouse under this subsection may NOT (Repeat, N-O-T) be treated as amounts received as retired pay for service in the uniformed services.”
Therefore, claiming these payments as “Pensions and Annuities” is in direct contravention with federal law !
Federal law barring their intent as “Pensions & Annunities”, that leaves only to report them as ALIMONY.
Lawyers who are Oklahoma State Reps or Congressmen where heard to say that if new laws got passed in Oklahoma that protected Military Members/Vets then it would take food off our tables. (Never heard of a starving lawyer) They where also heard to say amongst themselves that they needed to get laws changed so Vets would NOT keep coming back each and every year and try getting protections BECAUSE they will succeed if we do nothing.
Since most lawyers have a self-serving interest to keep the cash cow from ending. They will continue to claim that they are ONLY protecting the interests of a poor spouse that had to stay home and give up a career.
This even includes when said spouse had an affair and became pregnant and even had the adauistry to have the child’s birth paid for by the service member.