Yourko v. Yourko

PRESENT: Goodwyn, C.J., Powell, Kelsey, McCullough, Chafin, and Mann, JJ., and Millette,
S.J.
LEE ANN B. YOURKO
OPINION BY
v. Record No. 220039 JUSTICE CLEO E. POWELL
MARCH 30, 2023
MICHAEL B. YOURKO
FROM THE COURT OF APPEALS OF VIRGINIA
Lee Ann. B. Yourko (“Wife”) appeals the decision of the Court of Appeals reversing the
circuit court. Specifically, Wife takes issue with the Court of Appeals’ determination that certain
indemnification provisions in a property settlement agreement that she entered into with Michael
B. Yourko (“Husband”) violated federal law and, therefore, were void ab initio.
I. BACKGROUND
As part of their divorce proceedings, Husband and Wife negotiated an agreement
regarding the division of his military retirement pay. In conjunction with entry of the final
divorce decree, the circuit court entered a Military Pension Division Order (“MPDO”) which
memorialized the parties agreement.1 Under the terms of the MPDO, Wife was entitled to 30%
of Husband’s “disposable military retired pay.”
1
The MPDO is the equivalent of a property settlement agreement. See Code § 20-155
(permitting parties to “enter into agreements with each other for the purpose of settling the rights
and obligations of either or both of them” which does not otherwise have to be in writing,
provided the terms of the agreement are “contained in a court order endorsed by counsel or the
parties or . . . recorded and transcribed by a court reporter and affirmed by the parties on the
record personally”). As the Court of Appeals has noted, property settlement agreements are a
type of marital agreement which are “made in connection with the dissolution of a marriage or a
separation.” Wills v. Wills, 72 Va. App. 743, 759 (2021); see also Plunkett v. Plunkett, 271 Va.
162, 166 (2006) (implicitly equating marital agreements to property settlement agreements).
Here, we note that there is language in the MPDO that clearly indicates that it is derived from an
agreement between Husband and Wife regarding the division of Husband’s military retirement
pay. This is supported by the fact that Husband sought to challenge the MPDO based on his
assertion that the parties had made a mutual mistake of fact in calculating the amount of his
Paragraph 9 of the MPDO states:
The parties have agreed upon the level of payments to [Wife] to
guarantee income to her, based upon military retired pay with a
deduction for disability compensation, resulting in [Wife’s] share
equaling $1,202.70 per month. [Husband] guarantees the level
agreed upon by the parties and agrees to indemnify and hold
[Wife] harmless as to any breach hereof. Furthermore, if
[Husband] takes any action, including additional waiver of retired
pay for disability compensation which reduces the former spouse
share she is entitled to receive, then he shall indemnify her by
giving to her directly the amount by which her share or amount is
reduced as additional property division payments which do not
terminate upon her remarriage or cohabitation. [Husband] hereby
consents to the payment of this amount from any periodic
payments he received (such as wages or retired pay from any
source) and this clause may be used to establish his consent (when
this is necessary) for the entry of an order of garnishment, wage
assignment, or income withholding.2
At some point after entry of the MPDO, the agency in charge of distributing military
benefits, the Defense Finance Accounting Service (“DFAS”), computed Husband’s disposable
retired pay to be only $844 per month. Per DFAS, the remainder of his retirement benefits were
considered to be disability pay, which is not divisible under federal law. As a result, DFAS
calculated Wife’s share of Husband’s disposable military retirement pay to be only $253.20 per
month rather than $1,202.70.
disposable retired pay, thereby indicating that the MPDO was the product of an agreement
between the parties. Accordingly, for the purposes of this case, we will treat the MPDO as a
property settlement agreement.
2
Although the record indicates that Husband objected “to the provisions of paragraph
nine (9),” the nature of his objection is unclear. Further, as neither party appealed the entry of
the MPDO, its provisions became the law of the case. “‘Under [the] law of the case doctrine, a
legal decision made at one [stage] of the litigation, unchallenged in a subsequent appeal when the
opportunity to do so existed, becomes the law of the case for future stages of the same litigation,
and the parties are deemed to have waived the right to challenge that decision at a later time.’”
Kondaurov v. Kerdasha, 271 Va. 646, 658 (2006) (quoting Virginia Vermiculite, Ltd. v. W.R.
Grace & Co.-Conn., 108 F.Supp.2d 549, 609 (W.D.Va.2000)) (modifications in original).
Accordingly, any objection Husband may have raised regarding Paragraph 9 is deemed waived.
2
Husband subsequently moved to reinstate the parties’ divorce proceedings to the circuit
court’s active docket pursuant to Code § 20-121.1. Once his motion was granted Husband
moved to amend the final decree, the equitable distribution order and the MPDO. He argued that
the parties had erred in their calculation of his disposable retired pay and, as a result, the MPDO
required him to pay approximately 140% of his disposable retired pay. Husband further sought
to have Paragraph 9 of the MPDO struck as void ab initio as the indemnification provisions were
contrary to federal law. Specifically, he claimed that indemnification provisions would require
him to pay more than 50% of his disposable retired pay in violation of federal law.
After considering the matter, the circuit court dismissed Husband’s motion. The circuit
court explained that it had no authority to amend the MPDO because more than 21 days had
passed since the order was entered. The circuit court further stated that there were no clerical
errors in the MPDO nor was there a mutual mistake of fact by the parties. Finally, the circuit
court found that the MPDO “was an agreement” with regard to the amount Wife “was going to
get from the military portion . . . and that there [were] provisions . . . in paragraph 9, as to how it
would ensure that [Wife] get that amount.”
Husband appealed to the Court of Appeals, arguing that the circuit court erred in ruling
that it lacked the authority to amend the MPDO. In a published opinion, the Court of Appeals
reversed the decision of the circuit court. Yourko v. Yourko, 74 Va. App. 80 (2021). The Court
of Appeals agreed with the circuit court’s determination that the MPDO was a final order, that it
contained no clerical errors and that there was no mutual mistake of fact. Id. at 89-91. However,
it went on to rule that federal law preempted Virginia law on questions involving the divisibility
of military retirement benefits. Id. at 96. Relying on the United States Supreme Court’s decision
in Howell v. Howell, 581 U.S. 214 (2017), the Court of Appeals determined that,
3
“indemnification or reimbursement to compensate a former spouse for the waived military
retirement pay was in violation of federal law.”3 Id. at 94. Although Howell only addressed
situations where indemnification is ordered by a court, the Court of Appeals explained that the
difference between court ordered indemnification and contractual indemnification was semantic
in nature. Id. at 96. The Court of Appeals went on to hold that, because the indemnification
provision was in violation of federal law, it was void ab initio and, therefore, it could “be
attacked beyond twenty-one-days from judgment.” Id. at 97 (citing Bonanno v. Quinn, 299 Va.
722, 736-38 (2021)).
Wife appeals.
II. ANALYSIS
On appeal, Wife argues that the Court of Appeals erred in interpreting Howell to forbid
courts from recognizing indemnification provisions related to military retirement pay in property
settlement agreements. Wife contends that the holding of Howell was limited to preventing
courts from requiring indemnification. She insists that Howell does not address whether spouses
could voluntarily agree to indemnify a former spouse in the event military retirement pay is
reduced. 4 We agree.
3
Additionally, the Court of Appeals overruled its decisions in Owen v. Owen, 14 Va.
App. 623 (1992), and McLellan v. McLellan, 33 Va. App. 376 (2000), which permitted
indemnification provisions in negotiated property settlement agreements to address the reduction
in military disposable retired pay caused by the veteran waiving benefits in order to receive
disability pay.
4
At oral argument, Wife also argued that the doctrine of res judicata barred Husband
from challenging the validity of the indemnification provision of the MPDO. We note, however,
that none of Wife’s assignments of error raise the issue of res judicata as a basis for challenging
the Court of Appeals’ ruling. As this Court has repeatedly admonished, we will only consider
appellate arguments that are the subject of a proper assignment of error. See Wolfe v. Bd. of
Zoning Appeals of Fairfax Cnty., 260 Va. 7, 14 (2000); City of Winchester v. American
4
The primary question raised in Wife’s appeal is whether the United States Supreme
Court’s interpretation of the Uniformed Services Former Spouses’ Protection Act (“USFSPA”),
10 U.S.C. § 1408, in Howell invalidates the indemnification provisions of an agreement between
the parties. This question involves the interaction of federal statutes, Virginia statutes and
United States Supreme Court jurisprudence. As such, this case presents a question of law which
we review de novo. See Maretta v. Hillman, 283 Va. 34, 40 (2012).
In 1981, the United States Supreme Court ruled that Congress did not intend to allow
courts to divide military retirement pay as part of judicially divisible property in a divorce
proceeding. McCarty v. McCarty, 453 U.S. 210, 223 (1981) (observing that “the application of
community property law conflicts with the federal military retirement scheme”). In reaching this
conclusion, the United States Supreme Court noted that Congress treated military retirement pay
differently from other federal retirement systems. Id. at 221. Moreover, it pointed out that
Congress had referred to military retirement pay as “‘a personal entitlement payable to the
retired member himself as long as he lives.’” Id. at 224 (quoting S. Rep. No. 1480, 90th Cong.,
2d Sess., 6 (1968)) (emphasis in original).
In response to McCarty, Congress enacted the USFSPA, which authorized courts to treat
veterans’ “disposable retired pay” as judicially divisible property in divorce proceedings. 10
U.S.C. § 1408. Under the USFSPA, “disposable retired pay” is defined as “the total monthly
retired pay to which a member is entitled,” less certain deductions. 10 U.S.C. § 1408(a)(4)(A).
One such deduction occurs where military retirement pay has been waived in order to receive
Woodmark Corp., 250 Va. 451, 460 (1995). Accordingly, we do not consider whether the
doctrine of res judicata has any bearing on the present case.
5
veterans’ disability payments. Id.5 Thus, opting to receive disability payments would result in a
reduction of the amount of disposable retired pay that may be divided between the parties.
In Mansell v. Mansell, 490 U.S. 581, 585 (1989), the United States Supreme Court
addressed the effect that the USFSPA had upon its decision in McCarty. Its analysis began by
noting that, because “the application of state community property law to military retirement pay”
was “completely pre-empted” by pre-existing federal law, the USFSPA acted as “an affirmative
grant of authority giving the States the power to treat military retirement pay as community
property.”6 Id. at 588. However, it observed that the power granted by Congress was limited to
only a portion of a veteran’s military retirement pay. It specifically noted “that the [USFSPA]
does not grant state courts the power to treat as property divisible upon divorce military
retirement pay that has been waived to receive veterans’ disability benefits.” Id. at 594-95. In
other words, the USFSPA was only a partial rejection of McCarty; a veteran’s disability benefits
remained a personal entitlement.
Recognizing that the amount of disposable retired pay may be reduced by the actions of a
veteran after a property division award was entered in a divorce proceeding, some courts opted to
require that veterans reimburse or indemnify their former spouse if the veteran opted to waive
military retirement pay for disability pay. See, e.g., In re Marriage of Howell, 361 P.3d 936(Ariz. 2015); Glover v. Ranney, 314 P.3d 535 (Alaska 2013); Krapf v. Krapf, 786 N.E.2d 3185
Veteran disability pay, unlike military retirement pay, is not taxed. 38 U.S.C.
§ 5301(a)(1). As such, many veterans choose to waive retirement pay in order to receive an
equivalent amount of disability pay. Howell, 581 U.S. at 216.
6
Although “community property” and “equitable distribution” refer to different methods
of judicial property division in the context of divorce, the United States Supreme Court explicitly
held that the USFSPA applies equally to both methods. See Mansell, 490 U.S. at 585 n.2 (“The
language of the [USFSPA] covers both community property and equitable distribution States, as
does our decision today.”).
6
(Mass. 2003); Johnson v. Johnson, 37 S.W.3d 892 (Tenn. 2001). The United States Supreme
Court rejected this approach, however, ruling that a state court could not “subsequently increase,
pro rata, the amount the divorced spouse receives each month from the veteran’s retirement pay
in order to indemnify the divorced spouse for the loss caused by the veteran’s waiver.” Howell,
581 U.S. at 216. It explained that a court ordering a veteran to reimburse or indemnify their
spouse for the reduction in disposable retired pay caused by waiver due to disability was no
different than an order that divided the disability pay. Id. at 221.
The difference is semantic and nothing more. The principal reason
the state courts have given for ordering reimbursement or
indemnification is that they wish to restore the amount previously
awarded as community property, i.e., to restore that portion of
retirement pay lost due to the postdivorce waiver. And we note
that here, the amount of indemnification mirrors the waived
retirement pay, dollar for dollar. Regardless of their form, such
reimbursement and indemnification orders displace the federal rule
and stand as an obstacle to the accomplishment and execution of
the purposes and objectives of Congress. All such orders are thus
pre-empted.
Id. at 222.
It is important to note, however, that neither Mansell nor Howell involved a property
settlement agreement that contained an indemnification provision. Moreover, neither opinion
can be read as addressing the enforceability of such a provision. Mansell simply proscribes state
courts from “treating military retirement pay that had been waived to receive disability benefits
as community property.” 490 U.S. at 586. Howell, on the other hand, only makes clear that state
courts cannot order a veteran who elects to waive retirement pay for disability pay to indemnify
a former spouse. 581 U.S. at 222. It is against this backdrop that we must analyze the facts of
this case.
The record here establishes that the parties divided Husband’s military retirement pay as
part of a negotiated property settlement agreement, i.e., the MPDO. As a property settlement
7
agreement, the MPDO is a contract under Virginia law and must be treated accordingly. See
Southerland v. Estate of Southerland, 249 Va. 584, 588 (1995) (“Property settlement agreements
are contracts and are subject to the same rules of construction that apply to the interpretation of
contracts generally.”). Therefore, it cannot be said that the circuit court erred by treating
Husband’s disability pay as marital property for purposes of equitable distribution in violation of
Mansell because the present case is limited to the parties’ contractual obligations under the
MPDO. Howell is similarly not implicated, as nothing in the record indicates that the circuit
court sought to “circumvent” the USFSPA by ordering that Husband indemnify Wife for the
reduction in disposable retired pay; rather, the indemnification provision was undisputedly part
of the MPDO.
Having established that neither Mansell nor Howell apply to the present case, the
remaining question is whether the USFSPA bars a former service member from dividing his or
her total military retirement pay via contract. As previously noted, Congress intended for
military retirement pay to be a personal entitlement of the veteran which could not be judicially
divided in the context of divorce. McCarty, 453 U.S. at 224. Though Congress reduced the
extent of this personal entitlement by enacting the USFSPA, it did not eliminate it entirely. See
Mansell, 490 U.S. at 592 (noting that Congress decided to “shelter from community property law
that portion of military retirement pay waived to receive veterans’ disability payments”).
Importantly, neither Congress nor the United States Supreme Court has ever placed any limits on
how a veteran can use this personal entitlement once it has been received. In other words,
federal law does not prohibit a veteran from using military disability pay in any manner he or she
sees fit, provided the money is paid directly to the veteran first; indeed, it expressly permits such
8
usage. See, e.g., 38 U.S.C. 5301(a)(3)(B) (permitting a veteran to use disability benefits to repay
loans, provided the payments are “separately and voluntarily executed by the [veteran]”).
Moreover, the fact that the contract is between a husband and wife does not change the
analysis. As at least one treatise on this subject matter has recognized:
It’s one thing to argue about a judge’s power to require under
principles of fairness and equity, a duty to indemnify; that
approach has been eliminated by the Howell decision. It’s another
matter entirely to require a litigant to perform what he has
promised in a contract.
2 Mark E. Sullivan, The Military Divorce Handbook: A Practical Guide to Representing Military
Personnel and Their Families 691 (3d ed. 2019).
Indeed, this was the approach that the Court of Appeals adopted over 30 years ago. In
Owen v. Owen, 14 Va. App. 623 (1992), a husband and wife entered into a property settlement
agreement wherein the husband agreed to pay the wife “one-half of his Army gross retirement
pay based on twenty-five years of Army service, subject only to any deductions for federal and
state taxes required with respect to the Wife’s share of said pension.” Id. at 625. Like the
present case, the husband also agreed to “take no action to defeat his wife’s right to share in
these benefits,” and to “indemnify her for any breach by him in this regard.” Id. As a result, it
was determined that the wife was entitled to a portion of his pension totaling $1,241.47 per
month. Id. After the husband retired, he was deemed to be 60% disabled as a result of service-
connected injuries. Id. When he sought to reduce the amount of his payments to the wife, the
trial court upheld the property settlement agreement and ordered the husband to pay the full
amount. Id. On appeal, the Court of Appeals affirmed the trial court’s decision, pointing out
that the property settlement agreement did not assign the husband’s military disability benefits to
the wife, which would be a violation of the USFSPA. Id. at 626. “Rather, it insure[d] the wife a
steady or possibly increasing monthly payment in return for her waiver of the right to receive
9
spousal support once the husband retired.” Id. at 627. In so doing, the Court of Appeals
implicitly recognized and upheld the parties’ right to contract.
After determining that Howell barred servicemembers from making “contracts,
‘guarantees,’ or ‘indemnification’ promises to former spouses,” the Court of Appeals expressly
overruled Owen and its progeny. Yourko, 74 Va. App. at 96. This was error. As previously
noted, Howell is not implicated when parties contractually agree to divide military retirement
benefits and include an indemnification provision. For similar reasons, Howell is not implicated
when a court seeks to enforce an otherwise valid indemnification provision. Rather, by the plain
language of the opinion, Howell is only implicated when a court seeks to circumvent the
USFSPA by ordering indemnification.
It is further worth noting that, contrary to the Court of Appeals’ ruling, nothing in the
MPDO specifies that Wife must be indemnified from Husband’s military disability pay. The
MPDO only requires that Husband “indemnify [Wife] by giving to her directly the amount by
which her share or amount is reduced as additional property division payments which do not
terminate upon her remarriage or cohabitation.” By its plain language, the MPDO specifies that
the indemnification is a direct payment from Husband to Wife. With regard to the source of
funds, the MPDO is silent, stating only that Husband “hereby consents to the payment of this
amount from any periodic payments he received (such as wages or retired pay from any source).”
The record clearly indicates that Husband’s income far exceeds the amount necessary to
indemnify Wife even if the totality of his military retirement pay is excluded.7 Therefore, the
7
According to the Final Decree, Husband’s gross monthly income was $10,266.00.
Excluding his military retirement benefits ($4,009.00), this leaves $6,257.00 that Husband could
use to indemnify Wife. As the indemnification amount is $949.50, it is clear that Husband could
indemnify Wife without using any of his military retirement pay, much less his disability pay.
10
MPDO cannot be interpreted as requiring Husband to use any of his military disability pay to
indemnify Wife. On this record, any assertion to the contrary is entirely speculative, as the
MPDO does not dictate the source of the indemnification payments. As such, Husband “‘is free
to satisfy his obligations to his former wife by using other available assets.’” Owen, 14 Va. App.
at 627 (quoting Holmes v. Holmes, 7 Va. App. 472, 485 (1988)).
For these reasons, we expressly adopt the holding of the Court of Appeals in Owen that,
with regard to the division of military retirement benefits, “federal law does not prevent a
husband and wife from entering into an agreement to provide a set level of payments, the amount
of which is determined by considering disability benefits as well as retirement benefits.” 14 Va.
App. at 628.8 Along these same lines, federal law does not bar courts from upholding such
agreements or from enforcing indemnification provisions that may be included to ensure that
payments are maintained as intended by the parties.
III. CONCLUSION
For the foregoing reasons, we will reverse the decision of the Court of Appeals and
reinstate the circuit court’s decision dismissing Husband’s motion to amend.
Reversed and final judgment.
8
In reaching this conclusion, we join a growing number of states holding that “Howell
does not preclude one spouse from agreeing to indemnify the other as part of a negotiated
property settlement.” Jones v. Jones, 505 P.3d 224, 230 (Alaska 2022). See also Martin v.
Martin, 520 P.3d 813, 819 (Nev. 2022); In re Marriage of Weiser, 475 P.3d 237, 249 (Wash. Ct.
App. 2020).
11