Understanding The Military Survivor Benefit Plan (SBP) After Divorce: Key Rules And Financial Considerations

Understanding the Military Survivor Benefit Plan (SBP) After Divorce: Key Rules and Financial Considerations

Securing the Military Survivor Benefit Plan (SBP) after a divorce can be a vital part of ensuring long-term financial security for a former spouse, but it requires careful attention to specific rules and deadlines. If handled incorrectly, a former spouse risks losing out on these important benefits. This blog will explore the critical aspects of SBP, including eligibility requirements, the impact of remarriage, costs, coverage options, and why consulting a financial advisor is important to determine if SBP is the right choice.

1. Eligibility and the One-Year Filing Deadline

To maintain eligibility for SBP coverage after divorce, the former spouse must file for SBP coverage within one year of the final divorce decree. This is one of the most critical steps, and failure to meet this deadline could result in a permanent loss of SBP eligibility. Once the former spouse is named as the beneficiary in the SBP, they remain eligible to receive benefits unless they remarry before the age of 55. A remarriage before age 55 would terminate their eligibility for SBP benefits.

It’s important to also understand that if the service member waived SBP coverage at retirement, or if SBP was previously awarded to another former spouse, it may no longer be available as an option. In these cases, the current former spouse will not be able to claim SBP benefits, making it critical to review the service member’s previous elections.

2. The Financial Impact of SBP Premiums

The cost of SBP is a key consideration in deciding whether it is the right financial tool. SBP premiums are deducted from the service member's retirement pay, which means the cost directly affects the amount of retirement pay the former spouse will receive. The payout for SBP is capped at 55% of the service member’s total retirement pay, but there is flexibility in the amount of coverage. Lower coverage amounts can be selected, which will reduce the premium cost, but this also means a reduced payout for the former spouse. For example, selecting a payout of less than 55% may lower the monthly premium, but it may not provide sufficient financial protection in the long term.

If SBP coverage is suspended due to events like remarriage before age 55, the SBP premium is also suspended during that time. If the former spouse later becomes eligible again (such as after a divorce or the death of their new spouse), the SBP benefits can be restored, and premiums will resume.

Given the ongoing costs of SBP, it’s essential to assess whether the plan offers sufficient financial value. The DFAS website provides detailed resources on SBP premium rates and calculations, which can help former spouses make an informed decision about the costs involved.

3. Alternatives to SBP: Life Insurance as a Financial Planning Tool

While SBP provides valuable benefits, it is not always the best financial option for everyone. For some, the cost of SBP may outweigh its benefits, especially if the former spouse has other forms of financial support. It’s important to compare SBP to life insurance options, which may provide better or more flexible coverage for a lower cost.

For instance, life insurance can be structured to meet specific financial needs, and it may offer a tax-free payout, unlike SBP, which is based on retirement pay and subject to its own tax rules. Additionally, life insurance may provide a higher payout and does not have the same remarriage restrictions that come with SBP eligibility.

Consulting a financial advisor is critical to fully understand these options. A financial advisor can help evaluate whether SBP or life insurance (or a combination of both) is the best route to secure long-term financial security. The goal is to ensure that the former spouse’s financial needs are met in the most cost-effective manner possible.

4. Key Points to Keep in Mind

Here are some important points to remember when considering SBP after divorce:

• One-year deadline: You must file for SBP coverage within one year of the divorce to maintain eligibility.
• Remarriage rules: Remarriage before age 55 terminates SBP eligibility but can be restored if the remarriage ends.
• Cost considerations: SBP premiums are deducted from retirement pay and vary based on the level of coverage selected.
• Suspended coverage: If coverage is suspended (due to remarriage, for example), premiums are also suspended.
• 55% payout: The maximum SBP payout is 55% of the service member’s retirement pay, though lower amounts can be chosen to reduce the premium.

Conclusion: Navigating SBP with Professional Guidance

The Military Survivor Benefit Plan (SBP) is an important financial tool for former spouses, but it comes with strict rules, deadlines, and costs that need careful consideration. To make the best financial decision, it’s essential to assess the benefits of SBP in the context of overall financial planning. In some cases, life insurance may provide more flexible and cost-effective protection, making it a better alternative to SBP. Consulting with both a family law attorney and a financial advisor ensures that you fully understand your options and make an informed decision that protects your financial future.

For more detailed information, the DFAS website is an excellent resource for SBP-related topics, including eligibility, costs, and how to file for benefits.

If you have questions about securing SBP benefits or need personalized guidance in your divorce case, contact us at 301-952-9000 or use our online scheduling link (CLICK HERE) to set up a consultation with one of our experienced attorneys.

Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading this blog does not create an attorney-client relationship. For specific legal advice, please contact Patriots Law Group directly.