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San Antonio, TX Family Law and Military Divorce Blog

Sunday, March 18, 2018

Former Spouse Survivor Benefit Plan (SBP) "Base Amount" - Avoiding A "Death Windfall"

Under all circumstances, former spouse military retired pay stops at the servicemember's death. Former Spouse SBP (hereafter, and for brevity, "SBP") is a purchased annuity that provides a replacement stream of income to a former spouse who outlives the servicemember.  

The SBP "base amount" is the amount of the servicemember's gross retired pay that is insured.  By default, the base amount is the full amount of retired pay.  By agreement of the spouses or by court order, the base amount can be anything between the servicemember's gross retired pay but not less than $300.

If the servicemember is not already retired at time of divorce, how do you determine the appropriate base amount to insure in order to provide the former spouse the same level of income he/she was receiving prior to the servicemember's death (and not a "death windfall")?  The important factor to know is that SBP ALWAYS pays 55% of the base amount.  So, consider these assumed facts, as follows:

  1. At divorce the servicemember was a Major with 14 years of service and a hypothetical "high-36" months' base pay of $7,400 per month;
  2. The hypothetical retired pay multiplier would be 35% (i.e. 2.5% per year x 14 years);
  3. The hypothetical retired pay would be $2,590 (i.e. $7,400 per month x 35%);
  4. The marriage only overlapped 11 of the servicemember's 14 years of service, so the marital interest is 78.5714% (i.e. 11/14);
  5. The former spouse's one-half marital interest would be 39.2857% (i.e. 78.5714% / 2);
  6. The former spouse's gross (pre-tax) share of retired pay would be $1,032.29 (i.e. $2,950 x 39.2857%).

Under these assumed facts, the base amount to insure would be $1,877, and not the full amount of hypothetical retired pay of $2,950.  Why?  The base amount of $1,877 times 55% equal $1,032.35 (i.e. roughly equivalent to the former spouse's gross award at hypothetical retirement; off due to rounding).  Had the full amount of gross retired pay been insured, the SBP payout would be $1,622.50, which would produce a "death windfall" compared to the former spouse's gross award at time of hypothetical retirement of $1,032.19.

The cost of the SBP premium is 6.5% of the base amount for active duty members/retirees.  It's a few percentage points higher for Reserve members/retirees due to the delay in when they begin to receive retired pay (i.e. generally, age 60).  The base amount, the SBP premium, and the SBP payout adjust every year in tandem with the retiree cost of living adjustement, if any, so no need to worry about how to maintain parity.  DFAS will make the adjustments if the Domestic Relations Order dividing military retired pay is properly drafted and submitted to DFAS.

Speak with a qualified military divorce attorney to learn more about former spouse SBP and avoiding a "death windfall" for the former spouse.

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.  The firms also provides Wills and Estates and Probate services.

 


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