Exclusion of Military Disability Benefits from Marital Property Division under USFSPA: Iozzo v. Tarpenning

Introduction

This case arises from the 2015 divorce of Michael Thomas Iozzo Jr. (“Iozzo”) and Kimberly Chelsie Tarpenning, f/k/a Kimberly Iozzo (“Tarpenning”). As part of their property settlement, the Superior Court entered a Qualified Domestic Relations Order (QDRO) under the Uniformed Services Former Spouses’ Protection Act (USFSPA), 10 U.S.C. § 1408, awarding Tarpenning a share of Iozzo’s “disposable military retired pay.” Iozzo began retirement pay in mid-2022 and Tarpenning received her portion. In August 2023 he commenced Combat-Related Special Compensation (CRSC), a form of disability pay that legally replaces retired pay. Payments to Tarpenning ceased, and she filed a motion to enforce the QDRO. The Superior Court granted the motion, ordering reinstatement of retired pay, arrearages, and attorney’s fees. On appeal, the Alaska Supreme Court addressed two issues: (1) whether service of the show-cause motion complied with Alaska Civil Rule 5(g)(2), and (2) whether federal law permits state courts to require repayment or “indemnification” of waived retirement pay now replaced by disability benefits.

Summary of the Judgment

The Alaska Supreme Court affirmed in part and reversed in part. It held that non-compliance with Rule 5(g)(2) was a harmless procedural error because Iozzo later obtained full reconsideration briefing. Substantively, the Court concluded that federal law bars any state-court order compelling reinstatement of retirement pay or reimbursement of amounts waived for disability compensation. Under 10 U.S.C. § 1408(a)(4)(A)(ii) and the Supreme Court’s decision in Howell v. Howell, 581 U.S. 214 (2017), disability benefits are not “disposable retired pay” and any attempt to recoup waived amounts—whether labeled reimbursement, indemnity, or back child support—is pre-empted by the Supremacy Clause. The Superior Court’s enforcement order was therefore reversed.

Analysis

Precedents Cited

USFSPA, 10 U.S.C. § 1408: Defines “disposable retired pay” and authorizes division of military retirement benefits in state divorce.
Howell v. Howell, 581 U.S. 214 (2017): Holds that post-divorce waiver of retirement pay for disability benefits cannot be subject to state-court reimbursement or indemnification orders.
Murat v. F/V Shelikof Strait, 793 P.2d 69 (Alaska 1990) and Kenai Peninsula Borough v. Eng. Bay Vill. Corp., 781 P.2d 6 (Alaska 1989): Affirm the harmless-error analysis for service-of-process violations under Alaska Civil Rules.
Jones v. Jones, 505 P.3d 224 (Alaska 2022): Contrasts cases where the divorce agreement expressly provides for indemnification of waived retired pay.

Legal Reasoning

The Court employed de novo review of both procedural and substantive questions. On procedure, Alaska Civil Rule 5(g)(2) requires that any paper served a year or more after the last filing include notice of the right to file an opposition, the deadline, and the filing location. Although Tarpenning’s motion lacked that notice, Iozzo ultimately received full briefing on reconsideration, making the omission harmless under Alaska precedent.

Substantively, the analysis focused on three federal-law principles:

Supremacy Clause Preemption. State orders that conflict with or frustrate federal objectives are pre-empted. The USFSPA’s exclusions of waived retired pay for disability ensure uniform treatment of veterans’ benefits.
Statutory Definition of “Disposable Retired Pay”. Under 10 U.S.C. § 1408(a)(4)(A)(ii), amounts waived to receive VA disability compensation are excluded from “retired pay” subject to division.
Howell’s Bar on Reimbursement Orders. The U.S. Supreme Court held that any post-divorce reimbursement or indemnification for waived retired pay “displaces the federal rule” and is pre-empted, regardless of label. It rejected vesting arguments and upheld federal uniformity in benefit distribution.

Applying Howell, the Alaska Supreme Court concluded that the QDRO’s grant of a portion of “military retired pay” inherently covers only the amounts actually paid as retirement; once Iozzo elected CRSC, there was no retirement pay left to divide. Ordering him to reinstate retired pay or pay arrearages impermissibly interfered with his federal disability election and conflicted with federal law.

Impact

This decision reinforces federal supremacy over state-court property settlements involving military benefits. Divorce practitioners should note:

State courts cannot compel reimbursement when a veteran exchanges retired pay for federally-authorized disability benefits.
To protect former spouses, parties must expressly contract—outside the QDRO’s scope—for indemnification or alternative payments if retirement pay is waived.
QDROs should tie awards to the statutory definition of “disposable retired pay” and clarify treatment of future benefit elections.
Courts should ensure strict compliance with service and notice rules, though harmless-error principles may apply if full briefing occurs later.

Going forward, Alaska trial courts must follow Howell and its own precedents in construing QDROs, thereby avoiding orders that conflict with federal disability-pay entitlements.

Complex Concepts Simplified

QDRO: A court order in divorce that assigns a share of a spouse’s retirement plan to the other spouse, subject to the plan’s rules.
USFSPA (10 U.S.C. § 1408): Federal statute allowing state courts to divide only “disposable retired pay.”
Disposable Retired Pay: Military retirement pay minus specified deductions. It does not include amounts waived to receive VA disability compensation.
Concurrent Retirement and Disability Pay (CRDP): Allows certain disabled retirees to receive both full retired pay and VA disability without waiver.
Combat-Related Special Compensation (CRSC): Disability pay for combat-related injuries, which replaces retired pay entirely if the retiree waives that portion.
Preemption: Under the Supremacy Clause, federal law overrides conflicting state-court orders.
Harmless Error: A procedural mistake that does not warrant reversal if the opposite party ultimately received a fair opportunity to be heard.

Conclusion

Iozzo v. Tarpenning clarifies that once a veteran retires and later elects CRSC or other disability pay, the amounts previously payable as retired pay are no longer “disposable” or divisible under 10 U.S.C. § 1408. State courts lack authority to reinstate waived retirement pay or to order reimbursement or indemnification for those amounts. Procedural missteps in serving post-judgment motions may be harmless when full briefing occurs, but practitioners should remain vigilant about Alaska Civil Rule 5(g)(2). Most critically, divorcing spouses must draft QDROs and settlement agreements with explicit terms addressing potential shifts between retirement and disability benefits to avoid later conflict with federal law.