On June 26, 2012, the Court of Appeals of Virginia ruled that a Husband must buy an annuity for his former wife after he failed to designate her as a beneficiary of his military survivor benefit plan (Nelson v. Nelson, 2012 Va. App. Lexis 210). The Court found that the Husband (Mr. Nelson) violated a property settlement agreement that had been incorporated into the parties’ final divorce decree. Because of this violation, the Court ruled that Mr. Nelson must purchase an annuity for his ex-wife and found him in contempt. Additionally, he was ordered to pay his ex-wife’s attorney’s fees on appeal.
To recap exactly what SBP is…
The Survivor Benefit Plan (“SBP”) is an annuity program that allows retired (or retirement-eligible) active duty service-members to provide continued income to specified beneficiaries at the time of their death (10 U.S.C. §1448). A service-member may select spouse or former spouse coverage, coverage for the spouse or former spouse and qualifying children, or simply coverage for the qualifying children only.
Basically, what this means in layman’s terms – is that a service-member will receive eligible military retirement payments until his or her death. If that service-member wants to (or agrees to) provide continuing retirement payments to an eligible spouse or former spouse (among others), he or she can pay into the SBP annuity program which will continue a portion of those payments to the eligible beneficiary after his or her death.
This case is important because it also highlights the need for the service-member to properly designate who the beneficiary is going to be – and this must be done within the proper amount of time (which, for ex-spouses is within one year after the final decree of divorce). This case uses the term, “Property Settlement Agreement” – which is also often referred to simply as a “Separation Agreement.”
The details are as follows:
Mr. and Mrs. Nelson obtained a final decree of divorce in the trial court on November 4, 1987, which incorporated the Property Settlement Agreement previously agreed to by the parties. Following the entry of the final decree, Mr. Nelson took no action to re-designate Mrs. Nelson (the ex-wife) as the beneficiary of the Survivor Benefit Plan, which otherwise terminated by operation of law one year after the final decree of divorce. Mr. Nelson then later remarried, and the Court said that it appeared his second wife then became the beneficiary of his Survivor Benefit Plan. On March 25, 2011, Mrs. Nelson (the ex-wife), filed an affidavit and petition for rule to show cause asking the trial court to find Mr. Nelson in contempt for violating the terms of the Property Settlement Agreement. Nelson v. Nelson, 2012 Va. App. LEXIS 210, *3-4.
Following a show cause hearing on October 26, 2011, the trial court held Mr. Nelson in contempt for violating the Property Settlement Agreement and therefore ordered him compensate Mrs. Nelson (the ex-wife) in the amounts of (1) $16,366.98 in attorney’s fees and costs; (2) $1,850 in expert witness’ fees; and (3) $48,520 in underpaid military retirement pay, including interest. The trial court further instructed Mr. Nelson to provide an annuity to Mrs. Nelson (the ex-wife) in the amount of $383,226.70, payable upon Mr. Nelson’s death and in return for Mrs. Nelson’s lost stake in the Survivor Benefit Plan. Nelson v. Nelson, 2012 Va. App. LEXIS 210, *4-5.
Mr. Nelson was obviously dissatisfied with the result of the trial court’s ruling and he then appealed the case to the Court of Appeals. The Court of Appeals affirmed the trial court’s ruling much to Mr. Nelson’s chagrin for a variety of reasons.
So what are the take-aways from Nelson v. Nelson:
• Discuss with an attorney exactly what the Survivor Benefit Plan (SBP) is and how it can impact your case;
• Make sure that the issue is either agreed upon in a signed Separation Agreement or addressed by the Court in the final decree of divorce;
• Make sure that the designation is made within one-year of the final divorce decree.
• Always…Discuss with an attorney how to address the issue during the divorce case and how to file the appropriate forms with the government to make the designation correctly.