SHELTON VS. SHELTON (RETIREMENT DIVISION)

Key holdings

Practitioner summary

The principal issue was whether relief is available to a former spouse when a veteran unilaterally waives military retirement pay to receive disability benefits, eliminating the former spouse's share. The court held that although federal law prohibits treating veterans' disability pay as divisible community property, state contract law is not preempted, so the veteran must satisfy his contractual obligations; it reversed and remanded. 119 Nev. at 494, 498, 78 P.3d at 508, 511. The court traced the federal framework: McCarty v. McCarty, 453 U.S. 210 (1981), preempted state treatment of military retirement pay as community property; the USFSPA (10 U.S.C. section 1408) then authorized state courts to divide 'disposable retired pay'; and Mansell v. Mansell, 490 U.S. 581 (1989), held state courts may not treat total retired pay, including waived amounts converted to disability pay, as community property. To receive disability benefits, a retiree must waive a corresponding amount of retirement pay. 119 Nev. at 495-96, 78 P.3d at 509. Surveying post-Mansell authority (Poullard v. Poullard; Hisgen v. Hisgen), the court held that while states cannot divide disability payments as community property, they are not preempted from enforcing res judicata orders, enforcing contracts, or reconsidering decrees, even when disability pay is involved. 119 Nev. at 496-97, 78 P.3d at 509-10. Interpreting the parties' property settlement agreement - a question of law where the facts are undisputed - the court found it ambiguous but best read, considering its specific $577 figure and Roland's two years of performance, as obligating Roland to pay Maryann a fixed $577 monthly for her share of the community asset. 119 Nev. at 497-98, 78 P.3d at 510-11. Roland could not escape that contractual obligation by voluntarily forfeiting his retirement pay; he could satisfy it from other assets, and nothing prevented him from using his disability pay to do so. The court reversed the order denying Maryann's motion, which had rested solely on the community-property preemption rationale, and remanded.

In plain language

Roland and Maryann Shelton divorced after Roland's Navy career. Their divorce agreement, incorporated into the decree, split Roland's military retirement pay and gave Maryann $577 per month 'until her demise.' At the time, Roland was rated ten percent disabled and received a small disability payment. Roland made the required payments for two years. Then the Department of Veterans Affairs increased Roland's disability rating to 100 percent. Federal law lets a veteran waive military retirement pay in exchange for tax-free disability pay, and Roland did exactly that - waiving all his retirement pay for disability pay. He then stopped paying Maryann, arguing that federal law prohibits treating a veteran's disability pay as community property, so Maryann was entitled to nothing. The district court reluctantly agreed with Roland, relying on a U.S. Supreme Court decision (Mansell) that says states cannot divide military disability pay as community property. But it also felt the result was deeply unfair to Maryann. The Nevada Supreme Court reversed. It agreed that states cannot treat disability pay itself as community property, but it held that state contract law is a different matter and is not preempted by federal law. Roland had a contractual obligation - agreed to in the divorce decree - to pay Maryann $577 per month. He could not escape that obligation simply by unilaterally choosing to convert his retirement pay into disability pay. The court found the agreement, though ambiguous, was best read as requiring Roland to pay a fixed $577 monthly, which he had ratified by paying it for two years. Roland had to satisfy his contractual obligation from his other assets, and even his disability pay could be used voluntarily to do so. The court sent the case back for further proceedings.