Marriage of Costo, In re

• Decision Date: 31 May 1984
• Citation: 156 Cal.App.3d 781,203 Cal.Rptr. 85
• Court: California Court of Appeals Court of Appeals
• Parties: In re the MARRIAGE OF Ruth A. and Bill J. COSTO. Ruth A. COSTO, Respondent, v. Bill J. COSTO, Appellant. Civ. 22926.

Page 85

203 Cal.Rptr. 85

156 Cal.App.3d 781

In re the MARRIAGE OF Ruth A. and Bill J. COSTO.

Ruth A. COSTO, Respondent, v. Bill J. COSTO, Appellant.

Civ. 22926.

Court of Appeal, Third District, California.

May 31, 1984.

Rehearing Denied June 27, 1984.

[156 Cal.App.3d 782] Jack N. Martin, Sacramento, for appellant.

Law Offices of Jacoby & Meyers, Christopher Peterson, Sacramento, for respondent.

FIELDS, Associate Justice. ^*

Appellant Bill Costo appeals from an order of the superior court which held that respondent Ruth Costo, his former spouse, is entitled to a 46 percent share of his Air Force gross monthly retirement pay, including that portion which is a Veterans Administration disability benefit, and determining that he is in arrears in the amount of $6,732.26 as of November 2, 1982. Appellant contends that the portion of his total "retirement" pay which is considered a disability benefit is not subject to community property division. ¹ We agree and shall reverse the order of the trial court.

FACTS

The petition in this action was originally filed on September 17, 1970, alleging the parties married on August 2, 1942, and separated on August 21, 1970, after 28 years of marriage. Appellant was an enlisted man at the time of marriage, having begun his service career in 1940. After a hearing the trial court issued an intended decision which reflected that appellant had retired from the United States Air Force on December 1, 1963, with a credit for 23 years of service. The court held, however, that no portion of the military retirement pay allowed appellant would be considered community property. Thereafter an interlocutory judgment of dissolution of marriage was entered which divided the community property of the parties and resolved other issues in the matter, but which did not award respondent any portion of the military retirement pay as community property.

Both parties appealed. We remanded, noting that after the trial court's decision the California Supreme Court rendered its decision in In re Marriage of Fithian (1974) 10 Cal.3d 592, 111 Cal.Rptr. 369, 517 P.2d 449, holding that military retirement benefits are to be treated as community property. On remand an amendment to the interlocutory judgment was entered which held that 92 percent of appellant's retirement pay is community property, and directed that he pay to respondent 46 percent of his gross retirement pay as it is paid to him. By stipulation of the parties the order was not retroactive and was to be effective July 1, 1975.

In 1973 appellant began suffering severe medical problems, which progressively worsened and resulted in his first surgery in 1976. Subsequent surgery was performed in 1977. He became disabled and unable to work as a result of his medical problems.

Appellant's application to the Veterans Administration for disability benefits, originally filed in 1978, was approved April 30, 1980, after various appeals and reviews. The benefits were made retroactive to December 29, 1978. The Veterans Administration, having determined that appellant suffered a service-connected disability, approved a disability retirement of 50 percent.

The effect of this determination was that appellant would receive a monthly payment from the Veterans Administration due to his service-connected disability. ² However In June 1981, the United States Supreme Court issued its decision in McCarty v. McCarty (1981) 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589. Therein the court held that under the supremacy clause of the federal Constitution military nondisability retirement pay ⁵ is not subject to division in a dissolution of marriage action. In reliance on McCarty, appellant ceased making payments to respondent for her share of his retirement. He was later informed that California law required him to continue the payments, and purports to have recommenced paying them. This matter arose from a hearing to determine whether respondent is entitled to any portion of the disability payment from the Veterans Administration, and the amount of an arrearage due from appellant to respondent. After a hearing the trial court held that respondent is entitled to 46 percent of appellant's gross monthly retirement pay, including that portion which is a disability payment, and determined the arrearage based upon that finding.

                since appellant was also entitled to a retirement allowance,[156 Cal.App.3d 784]  the law providing for veterans benefits required that he waive a portion of his military retirement pay in an amount equal to his disability benefit. 3  Thus, although appellant's total monthly entitlement remained the same, a portion of it was attributed to the Air Force's military retirement system and a portion of it was attributed to the Veterans Administration. 4
                

DISCUSSION

In asserting her entitlement to the disability payments received by appellant, respondent relies upon the two Stenquist decisions. In In re Marriage of Stenquist (Stenquist I) (1978) 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96, ⁶ decided before the McCarty decision, a portion, designated "disability" of a retired serviceman's retirement allowance was held payable to his former spouse. There it appeared that the husband had suffered an injury ⁷ in 1953 which would have entitled him to retire with a 75 percent pension. Nevertheless, he continued to serve until 1970, at which time he could retire with a 65 percent regular pension, or could elect to receive his 75 percent disability pension. Naturally he chose the higher disability retirement pension. He then appeared in his dissolution action and contended that since his pension was due to a disability it could not be considered community property.

The California Supreme Court noted that either of Stenquist's options depended largely on monthly pay at retirement which is a function of longevity of service and rank. (Stenquist I, supra, 21 Cal.3d at p. 784, 148 Cal.Rptr. 9, 582 P.2d 96.) The court held it would be inconsistent with community property principles to permit a spouse to transmute what would otherwise be community property into separate property by electing to treat his retirement pay Thereafter, the United States Supreme Court decided in the McCarty decision that military nondisability retirement pay is not community property subject to division by the state courts. Thus, Stenquist I was erroneous. While the California courts consistently maintain that retirement pay based on longevity is deferred compensation regardless of its source, the United States Supreme Court in McCarty indicated it may treat military retirement pay differently. The court indicated that a military officer remains a member of the service after retirement and his retirement pay is subject to forfeiture if he engages in certain specified activities. The court went on to state that they were not deciding whether to characterize military retirement pay as deferred compensation because it was clear that the federal statutes had preempted the state court's right to characterize that retirement pay as community. (McCarty v. McCarty, supra, 453 U.S. at pp. 223-224, 101 S.Ct. at pp. 2736-37, 69 L.Ed.2d at p. 600.) The court suggested that giving an ex-spouse more protection was a decision for Congress to make and not for the courts.

                as "disability" rather than a pension based upon longevity.  (Ibid.)  Moreover, only a portion of the husband's retirement pay was attributable to disability;  as the serviceman approaches normal retirement age the pension, whether disability or based on longevity, serves the purpose of normal retirement pay.  (Id., at pp. 786-787, 148 Cal.Rptr. 9, 582 P.2d 96.)   Accordingly, the court held that only that portion of the retirement pay which exceeded the amount the serviceman would be entitled to based upon longevity, could be considered disability income and hence not divisible community property.  (Id., at p. 788, 148 Cal.Rptr. 9, 582 P.2d 96.)
                

Congress, taking its cue from the court and replying to the distressed ex-spouses, quickly enacted the Uniformed Services Former Spouses' Protection Act (the Act) (Pub.L. No. 97-252). Thus title 10, United States Code, section 1408, was enacted to ameliorate the holding of McCarty. Subdivision (c)(1) of section 1408 provides: "Subject to the limitations of this section, a court may treat disposable retired or retainer pay payable to a member for pay periods beginning after June 25, 1981, either as property solely of the member or as property of the member and his spouse in accordance with the law of the jurisdiction of such court." (Emphasis added.)

It is clear that Congress granted to the states the limited right to divide "disposable retired pay." Section (a)(4) of the act removes any ambiguity as to the meaning "disposable" by expressly defining what the state courts may divide. That section provides: " 'Disposable retired or retainer pay' means the total monthly retired or retainer pay to which a member is entitled (other than the retired pay of a member retired for disability under chapter 61 of this title) [ ⁸ less amounts which-- [p] (A) are owed by that member to the United States; [p] (B) are required by law to be and are deducted from the retired or retainer pay of such member, including fines and forfeitures ordered by courts-martial, Federal employment taxes, and amounts waived in order to receive compensation under title 5 or title 38." (Emphasis added.)

There is no ambiguity in the statute. Congress clearly intended to and did exclude from division by the state courts that "amounts waived in order to receive compensation under ... title 38."

Chapter 11 of title 38, section 301 et seq. of the United States Code provides for compensation for a disability contracted in the line of duty or for an aggravation of a preexisting injury or disease that raises its ugly head after separation from the military service.

Here appellant applied for and was granted disability benefits...