Chapter 61 Disability Retirement, CRDP, and Divorce: A Recent DoD Reversal That Restores What Many Military Spouses Lost

In divorce cases involving a medically retired service member, the division of military retired pay turns on federal statutory language that is technical, narrow, and frequently misunderstood. The issue is not simply whether the service member receives a monthly payment from the military. The issue is whether the payment qualifies as "disposable retired pay" under the Uniformed Services Former Spouses' Protection Act ("USFSPA"), 10 U.S.C. § 1408. That distinction is often decisive in Chapter 61 medical-retirement cases.

The Department of Defense's February 2026 revision to its Financial Management Regulation materially changes the analysis for a specific but important category of cases: Chapter 61 retirees who also qualify for Concurrent Retirement and Disability Pay ("CRDP"). For South Carolina spouses who were married during a long military career, the change may restore access to a substantial marital asset that DFAS had, for several years, treated as unavailable for direct division.

Military retired pay is divisible only to the extent it is disposable retired pay.

Federal law permits state family courts to treat a service member's disposable retired pay as marital property. In a long marriage that overlaps substantially with the service member's military career, the non-military spouse is often awarded a percentage share of the marital portion of retired pay. If the statutory requirements for direct payment are met, the Defense Finance and Accounting Service ("DFAS") may pay the former spouse directly. 10 U.S.C. § 1408(d)(2).

The statutory authorization is limited. The definition of disposable retired pay excludes amounts waived to receive Department of Veterans Affairs ("VA") disability compensation, and it also excludes the disability portion of retired pay paid under Chapter 61 of Title 10. 10 U.S.C. § 1408(a)(4)(A)(ii)–(iii). A former spouse's award is therefore payable only from the portion of the military retirement that remains after those exclusions are applied.

Chapter 61 retirement can eliminate the divisible share unless CRDP applies.

Most military retirees receive retired pay based on longevity: years of creditable service multiplied by 2.5%, applied to the retiree's high-three pay base. Chapter 61 medical retirees are treated differently. A Chapter 61 retiree's pay is calculated under the higher of two formulas: the disability percentage assigned by the military, multiplied by the high-three pay base, or the longevity formula. 10 U.S.C. §§ 1201–1208; 10 U.S.C. § 1401.

When the disability-percentage formula produces the higher amount, the retiree may receive a monthly payment that looks, in practical terms, like a military pension. Under the USFSPA, however, the disability-computed portion is excluded from disposable retired pay. In Mansell v. Mansell, 490 U.S. 581 (1989), the Supreme Court held that state courts may not treat federally excluded military disability pay as divisible marital property. In Howell v. Howell, 581 U.S. 214 (2017), the Court further held that a state court may not order indemnification for a post-divorce reduction in disposable retired pay caused by a VA disability waiver.

The practical consequence is significant. If a service member with a long career is medically retired under Chapter 61 and the disability formula controls, the former spouse may be left with little or no divisible retired pay, even though the same years of service would have generated a divisible longevity pension if the service member had retired through the ordinary longevity system.

CRDP restores longevity-based retired pay for qualifying retirees.

Federal law generally prevents a retiree from receiving full military retired pay and full VA disability compensation for the same period. The retiree must waive retired pay dollar-for-dollar to receive VA disability compensation. 38 U.S.C. §§ 5304–5305. That waived portion is excluded from disposable retired pay under § 1408(a)(4)(A)(ii).

Congress enacted CRDP to restore retired pay for qualifying retirees. 10 U.S.C. § 1414. In general terms, a qualifying retiree is a service member with at least twenty years of creditable service and a VA disability rating of at least 50%. For an ordinary longevity retiree, CRDP removes the effect of the VA waiver and restores the longevity-based retired pay that would otherwise have been waived. Because that restored payment is longevity retired pay, it remains subject to division under the USFSPA.

The disputed question was whether the same rule applied when the retiree was medically retired under Chapter 61. For several years, DFAS and the Department of Defense treated that question inconsistently.

DOHA held in March 2022 that Chapter 61 CRDP is divisible.

On March 1, 2022, the Department of Defense Claims Appeals Board issued a reconsideration decision in DOHA Claims Case No. 2016-CL-091608.3. The retiree in that matter had been retired under Chapter 61 with a 100% disability rating after 23 years of service. DFAS denied the former spouse any share of the military retirement on the ground that the retired pay was computed using the disability percentage and therefore excluded from disposable retired pay.

The Claims Appeals Board rejected that position. The Board reasoned that CRDP restores longevity-based retired pay that would otherwise be waived to receive VA compensation. On that analysis, the CRDP portion of the payment was not Chapter 61 disability pay. It was longevity retired pay restored by statute and therefore subject to division under the USFSPA. The Board also noted that Congress expressly exempted Combat-Related Special Compensation ("CRSC") from division, 10 U.S.C. § 1413a(g), but did not enact a comparable exemption for CRDP.

DFAS's February 2023 regulation created a practical barrier to collection.

In February 2023, DFAS revised the Department of Defense Financial Management Regulation, Volume 7B, Chapter 29, and the corresponding CRDP chapter, to reject the Claims Appeals Board's analysis. The 2023 regulation stated that the character of Chapter 61 disability retired pay did not change merely because the retiree became eligible for CRDP. DFAS therefore continued to treat Chapter 61 CRDP as non-divisible for former-spouse payment purposes.

That administrative position created a practical barrier. A state family court could find the DOHA reasoning persuasive and award the former spouse a share of CRDP-restored retired pay. DFAS, however, was the agency responsible for direct former-spouse payments, and DFAS would not honor the award under its 2023 interpretation. Courts and practitioners were left with competing authorities, including decisions that accepted DFAS's view and decisions that followed DOHA's plain-text analysis. Compare Chlarson v. Chlarson, 2024 UT App 117, with Lott (Va. Cir. Ct. 2023).

For the former spouse, the consequence was not theoretical. A long-married spouse could lose the benefit of a military retirement earned during the marriage because the service member was medically retired, even where the service member had more than twenty years of creditable service and was receiving CRDP.

The February 2026 DoD regulation restores the DOHA rule.

In February 2026, the Department of Defense revised its Financial Management Regulation again. The current edition of Volume 7B, Chapter 29, paragraph 7.2, and the parallel CRDP provision in Chapter 64, paragraph 5.2, now provides, in relevant part:

Pursuant to the Defense Office of Hearings and Appeals decision in Claims Case Number 2016-CL-091608-3, military retired pay payable to military retirees under Title 10, Chapter 61, of United States Code that is paid concurrently with Department of Veterans Affairs disability compensation is disposable pay subject to division under the Uniformed Services Former Spouse's Protection Act, because the amount paid effectively removes the disability factor from the Chapter 61 retired pay payable.

DoD Financial Management Regulation, Vol. 7B, Ch. 29, ¶ 7.2 (Feb. 2026 ed.); accord id. Ch. 64, ¶ 5.2 (Feb. 2026 ed.).

The Department has now adopted the interpretation reached by the Claims Appeals Board in 2022 and rejected by DFAS in 2023. Under the current regulation, Chapter 61 retired pay paid concurrently with VA disability compensation under CRDP is treated as disposable retired pay subject to division because the CRDP payment effectively removes the Chapter 61 disability factor from the payment being divided.

The revision is material. For a former spouse of a Chapter 61 retiree who has at least twenty years of creditable service and a qualifying VA disability rating, the 2026 regulation may restore access to a pension interest that DFAS previously treated as unavailable for direct payment.

Practical consequences in South Carolina divorce cases.

In a South Carolina divorce involving Chapter 61 medical retirement, counsel should address at least three issues before any final agreement, order, or trial presentation:

1. Obtain the rating and service documents. The relevant documents include the DoD/PEB disability finding, the VA rating decision and code sheet, the service member's LES, and the DD-214 or other service record establishing years of creditable service. Those documents determine whether the retiree is a qualifying retiree under § 1414 and whether the 2026 DoD interpretation applies.
2. Draft the apportionment order with precision. A generic award of a marital share of disposable retired pay may be inadequate in a Chapter 61 + CRDP case. The order should identify the qualifying-retiree issue, cite the controlling DoD FMR provisions, and state the formula DFAS is expected to apply. Poor drafting can convert a correct legal entitlement into a payment problem.
3. Address the CRSC election issue. A retiree eligible for both CRDP and Combat-Related Special Compensation ("CRSC") must elect one benefit. CRSC is not divisible. 10 U.S.C. § 1413a(g). If a retiree elects CRSC instead of CRDP, the former spouse's direct payment may be reduced or eliminated. A carefully drafted order should preserve remedies for a voluntary election that defeats the spouse's share, including offsets against other marital property or support where permitted. A state court may not order a retiree to choose one federal benefit over another in a manner inconsistent with Howell, but it may address the economic consequences of conduct that reduces the marital share.

This area of federal law has changed materially since 2022. It remains technical, and future appellate decisions may refine how the 2026 DoD regulation is applied in state domestic-relations cases. Service members and military spouses should obtain advice from counsel familiar with both federal military pension law and South Carolina equitable apportionment doctrine before resolving any case involving Chapter 61 disability retirement, CRDP, VA disability compensation, or CRSC.

Attorney Nick Mermiges represents active duty service members, veterans, and military spouses in complex divorce matters in Columbia and throughout South Carolina, including cases involving Chapter 61 disability retirement, VA disability, and concurrent receipt. For a consultation, call (803) 587-0472 or email Nick@NDMLaw.com.