Why did a husband who later filed bankruptcy agree to pay his wife one-half of his monthly pension payments as spousal support or alimony instead of transferring one-half of his pension to her by separate order in their Virginia divorce?
A husband and wife entered into a separation agreement which was subsequently incorporated into a Virginia final decree of divorce. The most significant assets in the Virginia divorce case were the husband’s military pension and the former marital residence. The husband began receiving his pension as a retired military officer a year before the parties entered into the Property Settlement Agreement. Instead of dividing the military pension with an order complying with the Qualified Domestic Relations Order provisions, the husband agreed in an atypical Property Settlement Agreement to pay to wife one-half of of his monthly military pension as spousal support or alimony, without a separate court order or any election of survivor benefits. The former husband filed a chapter 7 bankruptcy case following the divorce, reported in In re Robinson, 346 B.R. 172 (Bankr. E.D. Va., 2006).
The judge in Robinson noted the benefits that the former husband could realize by structuring the Property Settlement Agreement as the parties did. In Virginia, unless otherwise agreed by the parties, spousal support or alimony terminates upon the death of either party or the remarriage of the spouse receiving support, or when the spouse receiving support has been habitually cohabiting with another person in a relationship analogous to a marriage for a year or more. In Robinson, if the wife had received one-half of the husband’s military pension instead of one-half of his monthly payments as support, the wife would have received one half the total value of the pension regardless of her remarriage. If the former wife should remarry or cohabit in a relationship like a marriage for more than a year, then she could lose her monthly payments and all interest in her former husband’s pension.
The former husband could also receive an additional benefit by structuring his former wife’s interest in his pension as support. The former husband could realize tax benefits by paying support to his former wife because payments that meet the statutory requirements of Internal Revenue Code Section 71 would be deductible by the payor spouse as alimony and taxable as income to the payee spouse.
You should consult with your Virginia bankruptcy or divorce lawyer on how to best structure your divorce settlement for a future bankruptcy.