Area Method - Practicum and Example

© 2016 Brian Mork, Ph.D. [Rev 2.1]

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Introduction

Other web pages document the mechanics, and describe the utility and appropriateness of the Dual Coverture Value Area Method (DCV-AM) to divide military retirements in case of divorce.  In short, DCV-AM is an improvement to prior methods that gives the same results.  DCV-AM is easier for the courts, more lucid, more simple, more capable.  It is capable of equitably dividing retirements equitably when other methods can not.  This document gives practical steps to implement AM in your case.

The Area Method discussed on this page is applicable to Active Duty and Reserve military retirements.  If you are intested in Reserve military specific issues, please also see another web page about dividing military reserve retirement pay.  Other web pages deal with law and statutes, promotion enhancements, and Dual Coverture (DC) methods.

Intent

Equitable intent must drive the appropriate methods.  It would be wrong to use insufficient methods and warp the Court's intent for equity by saying, "But xxx is the formula we use in our state."  That shoe-horns every person into a simplistic view of the world that may not be equitable.  Yet this is what often happens because attorneys and Courts feel unable to deal with the complicated government bureacracy and uniqueness of military situations.  DCV-AM solves this problem.

First, determine the intent of both sides of a divorce.  The answer to these questions are documented in the first four columns of the table below, and then the division methods that can be used are listed in the right column.  To understand implications of your selection, you must also see the red/green selection chart on the Area Method web page. Settling the answer to these questions needs to be done before wasting anybody's time on hashing out court order division language.

In all cases tabulated below, both parties receive annual inflation adjustments and time value of money while waiting for retirement payment to start.  This is accomplished via military pay raises when using DCV-AM, Dual Coverture (DC), and Single Coverture (SC) fraction methods. In contrast, DFAS Hypothetical Method (HM) accomplishes this by giving Federal COLA numbers to the ex-spouse and military pay raises to the military member.  Such a difference could be inequitable to either person based on unkown future numbers. There is no advantage to the HM over DCV-AM and intentional inequity should be avoided.

Set aside retirement service credit earned before marriage?
Set aside retirement service credit earned after marriage? Set aside promotion enhancements actively earned before marriage?
Set aside promotion enhancements actively earned after marriage? Use This Division Method
Yes/No
Yes/No
Yes
Yes/No
Only DCV-AM can do this.
No
Yes/No
No
Yes
DCV-AM or DC.
No
Yes
No
Yes
DCV-AM, DC, or HM.
Yes
Yes/No
No. Damages ex-spouse
Yes
DCV-AM or DC.
Yes
Yes/No
No. Damages ex-spouse
No
DCV-AM or SC.
No
Yes
No
No
SC. Inappropriate civilian division method.
No No
No No
Violates  the law in most states.


Area Method Case Study Example


The Area Method is based on creating and using an area diagram.  The end result is a percentage number to send to DFAS.  Or, if the military member is not retired, you'll send the formula to DFAS and they will plug in numbers known only at retirement in order to calculate the percentage number at that time.  The percentage is calculated using a numerator and a denomintor.  Here's how to calculate each.

Area Method Diagram
Creating and using the diagram is straightforward.  Follow in the example below. You can also plug the numbers into a spreadsheet that automates the calculations. Download the Dual Coverture Value Calculator spreadsheet from the references section below.

STEP 1 - Collect the retirement Duty Credit information you will need (months or points/30).  See the column in the table below.  Collect the Rank, Longevity, and Basepay information you will need, summarized in the table below.  Notice if you're a Reservist, longevity is your total service years used to look up on a pay chart, while duty credit is (retirement points/30) as mandated by the Federally mandated retirement formula.


Event
Date
Rank/Grade
Longevity (yr)
 Basepay ($/mo)+
Service Credit (mo)
enlisted
4/15/1993
n/a
0
n/a
0
married
4/15/1997
O-2
4
4148.10
37.633
divorced
2/15/2009
O-5
15.8
6853.80
210.000
retired
future* O-5
22
7928.70
266.333
*When the division order is written, grayed future numbers in this row are impossible to know.  DFAS will supply these numbers upon retirement. The numbers shown here are guessed numbers, provided only so a complete case study and demonstration can be shown before retirement actually happens.

+The exact year used to look up base pay doesn't matter because only pay ratios matter.  Year to year, although the numbers will change, the ratios do not.  In this example, 2009 was chosen because that's when litigation occured.



STEP 2 - Draw the area diagram.  Drawing the diagram is optional, but it really helps visualize things.  The white area is marital property and will be divided.  The hashed and dotted areas are belong solely to the military member because they were actively earned without any contribution by the ex-spouse.
  1. On the horizontal axes, write down the amount of duty accrued at each transition of life (marriage, divorce, retirements) out to 3 decimal places.  Active Duty use months; Reservists use points/30.
  2. For the vertical axes, look up military monthly base pay at each transition of life. It is important to use the same year paychart for all lookups even though the events occured at different years. It is often convenient to use the year of divorce since that’s when everybody is looking at the issue.

STEP 3 - Write down how to calculate the marriage portion of the diagram, by looking at the diagram.  All the numbers should be known, because this will be based only on present day or history. This will be the coverture fraction numerator.  In the formula below, D is the duty  at marriage or divorce (according to the subscript), and V is the value of a year at marriage or divorce (according to the subscript).

Numerator = ( DDVD - DMVM )  (big white square minus the dotted area in the lower left)
Numerator = (210 * 6853.80 - 37.633 * 4148.10)
Numerator = 1283191

STEP 4 - Write down how to calculate the total area of the diagram.  This may contain numbers you don’t know yet such as total retirement points.  This will be the coverture fraction denominator.  In the formula below, DR is the duty at retirement, and VR is the value of a year at retirement. If you are not yet retired, you cannot provide the numbers - rather you have to leave the retirement numbers unspecified in the order and tell DFAS to put them in later.

Denominator = DRVR
Denomintor = (263.333 * 7928.70)
Denominator= 2111677

STEP 5 - Write down the words to divide the numerator by the denominator. You will get a fraction 0.0 to 1.0, which is the coverture fraction.

Coverture Fraction = 1283191 / 2111677
Coverture Fraction = 0.607665

The ex-spouse typically receives a portion equal to 1/2 of the coverture fraction, or 30.38% of the retirement monthly paycheck in this case,

STEP 6 - The division order language will be 50% times the coverture fraction times the monthly disposable retirement pay.  Something other than 50% may be used if the marital asset is not divided equally. The legal language to implement the Dual Coverture Value or Area Method is given here.  This is the textual equivalent of the steps above, telling DFAS how to do the coverture fraction.  If retirement has not happend, this paragraph is the only part that goes to DFAS.  If retirement has happened, just send DFAS the percentage.

“The former spouse is awarded a percentage of the member’s disposable military retired pay each month, to be computed by multiplying 50% times a Coverture Fraction. The Coverture Fraction numerator is 1283191.  The Coverture Fraction denominator is member’s total number of retirement duty months times basepay at time of retirement.  Basepay values for this formula will be looked up on the 2009 year pay chart. If a Reserve retirement is obtained, duty months = points/30."

Notice that the charted base pay at time of retirement is used in the coverture fraction even though it may not be used to calculate actual retired pay.  To calculate retired pay, "High-3" base pay might be used, or maybe a 1% reduced base pay, or other numbers based on future law.  It doesn't matter.  For the formula to work, we need actual charted base pay because we care only about the ratio of pay values on the chart.

STEP 7 - Remember, nobody knows the exact point count or pay grade when the military member will in the future retire.  The only numbers DFAS will provide later are the retirement values.  The court division order must provide all the other numbers as shown in the quoted texts above.

To finish this example, the 2009 paychart shows the retirement pay would be $4399.33 in 2009 dollars. The coverture fraction would be 60.77%, so the marital asset is $2673.32 per month, and each spouse gets half.  The spousal fraction calculated by DFAS would be 30.38%, or $1336.66 per month in 2009 dollars.  Notice the ex-spouse amount includes the time value of money between divorce and retirement.  Both will continue to get annual raises as the pay chart goes up each year.


Consider More than Monthly Amount


Selecting the proper method from the table above will correctly divide the monthly retirement paycheck for Active Duty military and Reserve military.  For Reserve military, there is also a question of which paychecks are to be divided.  The value of the retirement asset includes attention to dividing which checks in addition to dividing each check.

Besides dividing each monthly payment, don't forget if you are working with a Reserve retirement with duty spanning 28 January 2008, some or all of the monthly retirement payments before military member age 60 may not be marital assets. See the 3-D Value section of the document "Attorney Instructions - Division of Reserve and Active Duty Military Retirements" from the references below, and the web page "Attorney Guide Dividing Military Reserve Pay".

Traditionally, Reserve military retirement checks start when the military member turns 60 years of age because that's when a Reserve retirement begins to pay out.  However, 10 USC 12731(f)(2)(A) created a new and quantifiably separate retirement for Reservists that does not comingle in any way with the traditional retirement, and is created and is accrued only based on military duty after January 28, 2008.  If the ex-spouse did not participate in earning the new benefit after that date, then the additional checks earned after the marriage are not part of the marital asset.  For more detailed reading, see the Reservist retirement division web page or the bottom of the Area Method web page.

References

  1. Mork white paper: "A Better Method to Equitably Divide Military Retirements Upon Divorce", 2016.
  2. Excel spreadsheet for doing Dual Coverture Area Method, 2016.
  3. Mork white paper: "Attorney Instructions - Division of Reserve and Active Duty Military Retirements", 2011.
  4. 10 USC 1408 Uniformed Services Former Spouses' Protection Act (house.gov, local copy)
  5. DOD 7000.14-R Vol 7B "Military Pay Policy - Retired Pay" Chapter 29.  Regulatory guidance replaces DFAS attorney guides as of September 2015. (defense.gov, local copy).
  6. DoD Report to Committees on Armed Services of the US Senate and House of Representatives, 1998? 2002? (Defense.gov, local copy) (84 pgs, 279kb pdf)
  7. Dual Coverture Does Simple Division Orders--reply to William Troyan.
  8. Letter to DFAS recommending Area Method (Dual Coverture Method) replace the Hypothetical Method in their published guidance.
  9. Excel spreadsheet showing Area Method gives the same results as Hypothetical.

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This document was edited using Kompozer. © 2016 Brian Mork, Ph.D.