The Hidden Risk in Military Divorce: What Happens If Retirement Pay Is Waived for Disability Benefits?
When military families go through a divorce, one of the most valuable assets on the table is often military retirement. Many spouses rely on receiving a portion of that retirement as part of the property division.
But there’s a risk that isn’t always obvious at the time of divorce—especially when the service member is still on active duty.
In some situations, a service member can later reduce or even eliminate the portion of retirement pay a former spouse receives by electing disability benefits.
Here’s what you need to know.
Understanding the Basics: Retirement vs. Disability
Military members who serve long enough may qualify for retired pay. This is often treated as marital property in a Missouri divorce if it was earned during the marriage.
Separately, veterans who develop service-related disabilities may qualify for VA disability benefits. These benefits are based on the severity of the disability and how it impacts earning ability.
Here’s the key issue:
To receive disability benefits, a retiree often must waive a portion of their military retired pay.
Why would someone do that?
Because disability benefits are typically tax-free, while retirement pay is taxable. That means the service member can increase their after-tax income by making this election. This is outlined in Sect. 143.121 R.S.Mo.
Missouri exempts 100% of retirement benefits received as a result of service in the Armed Forces from state income tax for tax years beginning on or after January 1, 2022 . § 143.121 R.S.Mo.. This exemption applies to both regular and reserve components, including the National Guard.
Why This Creates a Problem in Divorce
Under federal law and Missouri case law, courts can divide “disposable retired pay” as marital property. However, amounts waived in favor of disability benefits are not considered disposable retired pay.
That leads to an important consequence:
👉 Courts cannot divide military disability benefits—or the portion of retirement pay waived to receive them.
The U.S. Supreme Court made this clear in Mansell v. Mansell, and Missouri courts have followed that rule in cases like Morgan v. Morgan.
In practical terms, this means:
A divorce judgment may award a spouse a percentage of military retirement
Later, the service member can elect disability benefits
That election reduces the retirement pay
The former spouse’s share is reduced as well
And here’s the difficult part:
👉 Missouri courts generally cannot go back and fix it later.
Why the Court Can’t Fix It
In Missouri, property division in a divorce is final. Once the court divides marital property, it typically cannot be modified.
Military retirement is treated as property, not ongoing support (like maintenance). That distinction matters.
So even if circumstances change later—like a waiver for disability benefits—the court usually cannot re-divide the property to make things fair again.
Missouri courts have recognized how harsh this can be. In fact, courts have noted that this situation gives the military member significant control over a marital asset after the divorce is final.
A Real World Example
Let’s say:
A couple divorces after 15 years of marriage
The spouse is awarded 40% of the military retirement
At the time of divorce, the service member is still active duty
Years later:
The service member retires
Then qualifies for disability benefits
Elects to waive a portion of retirement pay
Result:
The total retirement pool shrinks
The former spouse’s 40% is now 40% of a smaller number
In some cases, the reduction can be significant.
Why This Risk Is Higher in Active Duty Cases
This issue is especially important when:
The service member is still on active duty at the time of divorce, and
The retirement amount is not yet fixed, and
Future disability status is unknown
At that stage, you are often negotiating a division of an asset that hasn’t fully materialized yet—and may change later.
What Spouses Should Keep in Mind
If you are negotiating a divorce involving military retirement, it’s important to understand:
1. Not All Retirement Is Guaranteed
What looks like a stable, long-term asset may change depending on future disability elections.
2. Disability Benefits Are Off-Limits for Division
Even if it feels unfair, courts are limited by federal law.
3. The Risk Is Built Into the System
This isn’t a loophole—it’s how the law currently operates.
4. Planning Matters
How your settlement is structured can have long-term consequences.
Missouri Specific Note
Missouri law follows federal law on this issue, and cases like Morgan v. Morgan highlight how these situations are handled in our state. However, every case is fact-specific, and this is an area where careful legal analysis is critical.
Final Thoughts
Military divorce involves unique rules that don’t apply in civilian cases. If you’re relying on a share of military retirement, it’s important to understand not just what you’re receiving today, but what could change in the future.
At Lotspeich Law, LLC, we focus on helping clients navigate complex family law matters with clarity and strategy—especially in military cases where the stakes are high.
If you’re facing a divorce involving military retirement in Johnson, Lafayette, Pettis, or Henry County, we invite you to schedule a consultation to discuss your situation and your options.
