How Recoupment of Separation Incentive Pay Impacts Former Spouse Pay

Some servicemembers left military service by taking Voluntary Separation Incentive (VSI) pay or Special Separation Bonus (SSB) pay and later returned to military duty and qualified for either an active duty or reserve component retirement.  So, what happens to the VSI or SSB payments the servicemember received?

DFAS will recoup the amount of VSI or SSB it paid.  Generally, recoupment starts about 3 months after the now-retired member begins to receive retired pay.  The recoupment rate is 40 percent of the retired member’s retired pay per month until the full recoupment has been satisfied.  Retired members may apply for a hardship reduction in the amount recouped.  Retired members may also authorize DFAS to recoup at rate higher than 40 percent per month to accelerate repayment.  Repayment by lump sum is not authorized; there is no mechanism for DFAS to accept a lump sum payment from a retired member.

Recoupment affects disposable retired pay and therefore impacts former spouse retired pay.  Recoupments for overpayments is one item listed in the Uniformed Services Former Spouse Protection Act (USFSPA) as an authorized deduction from gross retired pay in calculating disposable retired pay.1  Remember, the former spouse’s percentage award is only multiplied against disposable retired pay.2

For retired members, be aware that DFAS does not have an “automatic trigger” for deducting the VSI or SSB recoupment when calculating disposable retired pay.  The issue must be brought to DFAS’ attention so it can manually make the adjustment in DFAS’ computer systems.  In one case I’ve handled, the impact on disposable retired pay caused the former spouse’s award to decrease by approximately $400 per month.  No “indemnification” for the former spouse is available.  Again, “recoupment for overpayment” is a statutory component in the computation of disposable retired pay.  Any attempt by a State Court to order indemnification should be challenged as being preempted by Federal law.3

Author Jim Cramp is a retired active duty colonel and the founder and principal attorney at the Cramp Law Firm, PLLC.  The firm provides a spectrum of family law-related services to clients in the greater San Antonio region, across the United States and throughout the world.  The firm specializes in Federal Civil Service and Military Divorce matters.

Note 1:  See 10 U.S.C.§ 1408(a)(4)(A)(i) (listing recoupment for overpayment as a deduction in calculating disposable retired pay).

Note 2:  See 10 U.S.C.§ 1408(c)(1) (limiting State Courts’ authority only to treating disposable retired pay as marital property).

Note 3:  See 10 U.S.C.§§ 1174, 1174a, 1175, 1175a (establishing the requirement for recoupment if the member later becomes eligible to received retired pay); 10 U.S.C. § 1408(a)(4)(A)(i) (listing recoupment for overpayment as a deduction in calculating disposable retired pay).