This case presents two issues for review: (1) following enactment of the Federal Uniform Services Former Spouses' Protection Act
Virginia Casas (Virginia) and Max Thompson (Max) were married October 20, 1949. Max was a commissioned officer in the United States Navy at the time of the marriage. Virginia and Max were married for over 15 years and had five children. The parties separated July 21, 1965; at that time, Max had been on active duty with the Navy for over 21 years.
Max was also awarded custody of four of the children; the fifth child, the eldest, was already married at the time her parents were divorced. The four children continued to live with Max and were supported solely by Max during their minority. One of the children lived with Virginia for a brief period, but Max paid child support to Virginia during that time.
Max retired from the Navy July 1, 1970, after serving over 26 years, and began receiving monthly nondisability retirement pay. On November 5, 1980, Virginia filed a complaint to have an omitted asset, Max's military pension, partitioned. The trial on the partition was held March 22, 1982, and the court ruled from the bench that, pursuant to McCarty v. McCarty (1981) 453 U.S. 210 [69 L.Ed.2d 589, 101 S.Ct. 2728], Max's pension was his separate property.
Prior to entry of judgment, however, Virginia moved the court to enter a judgment different than announced, based on passage of FUSFSPA. The court reopened the matter and another hearing took place June 15, 1983. This time the trial judge found that FUSFSPA overruled McCarty and that Max's retirement pay was a community property asset which was omitted in the earlier divorce proceeding and should now be partitioned. However, the court refused to partition the amount paid to Max from the date of his retirement in July 1970 to November 1980, when Virginia filed her complaint for partition, even though the court made no finding of laches or of unclean hands. Max's attorney had argued the unclean hands defense based on the 1966 judgment which found Virginia to be an "unfit parent," but the court responded that fault and guilt have no place in property division in dissolution proceedings according to current state policy. In spite of finding no unclean hands or laches defenses, the court reasoned that it would be unfair in view of all the facts of this case to require Max to pay Virginia money which he had received and spent over the last 10 years, especially because Virginia had waited until 14 years after her divorce to file for the partition and because Max had been supporting the children during that period. However, because Max was put on notice that the pension was subject to division when Virginia filed her complaint in November 1980, from that time forward the pension was to be divided.
Both Max and Virginia appealed the trial court's judgment. Max argued that the retirement income should not have been partitioned and, alternatively, that the award for future payments should be based on his disposable pay instead of his gross pay. Virginia contended that she should not have been denied a percentage of the retirement pay from the retirement date in 1970 to her filing date in 1980. She further argued that she should have been awarded 30 percent of the gross retirement pay that Max received between 1980 and the 1983 hearing date, regardless of the accounting problems such an award might cause.
The Court of Appeal majority upheld the lower court's judgment on all matters except one — the matter of Virginia's award of 30 percent of the disposable pension income Max received between 1980 and 1983. As noted, the trial court's only reason for not awarding a percentage of the gross income was its belief that such an award would cause an "accounting nightmare." The Court of Appeal held that the trial court, having offered no other equitable considerations to support its reasoning, abused its discretion in denying Virginia an award of 30 percent of the gross income for those years.
Both parties filed petitions for review. Max sought review on five grounds: that (1) McCarty should be applied retroactively to preclude division of military pensions; (2) military pensions are not vested after 20 years of active duty service; (3) military retirement pay is not community property in California; (4) FUSFSPA precludes division of his military pension because his divorce was final before McCarty was decided; and (5) FUSFSPA allows state courts to divide only disposable retirement pay. Virginia sought review of the Court of Appeal's refusal to award her a share of Max's pension benefits received before she filed for partition in 1980.
After carefully considering the matter, we have determined that the thoughtful opinion of Justice Work for the Court of Appeal, Fourth Appellate
 Virginia seeks to partition an asset, Max's military pension, omitted and unadjudicated in the 1966 divorce.
Until In re Marriage of Fithian (1974) 10 Cal.3d 592 [111 Cal.Rptr. 369, 517 P.2d 449], the California view regarding the characterization of vested military retirement pensions as community or separate property was unsettled. (See Aloy v. Mash (1985) 38 Cal.3d 413, 416 [212 Cal.Rptr. 162, 692 P.2d 656].) After 1974, California courts uniformly held vested military pensions were community property. However, in McCarty v. McCarty, supra, 453 U.S. 210, the United States Supreme Court held the federal legislative scheme authorizing military pensions impliedly preempted state community property law and prohibited the division of military retirement pay. Reacting to McCarty, Congress amended these statutes by adding section 1408, FUSFSPA, to title 10 of the United States Code.
Henn authorizes an independent action to partition omitted pensions only if the nonemployee spouse had a divisible interest in the asset at the time of the original decree. Thus, we are left with the question whether Virginia had such an interest in 1966. We conclude she did. In Fithian, [we] held vested military pensions are community property. Although the parties' divorce occurred before that decision, Fithian is given "full retroactive effect" under Henn v. Henn, supra, 26 Cal.3d 323, 328-329. (See Shaver, supra, 107 Cal. App.3d at p. 794.) In Henn, [we] stated as the general rule that overruling decisions are retroactive. There, [we] noted Fithian did not overturn a settled rule of law and applied Fithian retroactively to a 1971 dissolution. The preliminary finding necessary to support a determination of nonretroactivity is that the decision must establish a new principle of law by overruling clear past precedent or by deciding an issue of first impression whose resolution was not clearly foreshadowed. (Hurvich v. Califano (D.C. Cal. 1978) 457 F.Supp. 760, 762, interpreting Chevron Oil v. Huson, supra, 404 U.S. 97, test for retroactivity.) Thus, applying the same United States Supreme Court test for retroactivity to McCarty and Fithian gives different results: McCarty, which overruled clear California law and whose purpose would not be effectuated by retroactive application is deemed prospective.
We find Max's proposition illogical. Applying his theory, former spouses whose community property interests were acquired over exactly the same time period, whose military retiree spouses receive exactly the same gross retirement benefits, are subject to receiving different sums if, for example, their respective spouses are in different tax brackets,
Max does not suggest there is logic in his position, nor that disparate treatment will not occur. He argues that FUSFSPA, while it overruled McCarty, only grants the states a limited waiver of the preemption McCarty found implicit in the preexisting statutes.
Max's proposition flows from a flawed premise. He views McCarty's holding of preemption as an immutable given, believing any power which the states now possess to characterize military pensions as community property must derive from an express authorization in FUSFSPA. His approach is similar to that expressed in In re Marriage of Costo (1984) 156 Cal.App.3d 781, 786 [203 Cal.Rptr. 85], where the reviewing court merely looked to the face of section 1408 and determined Congress did not give California the unlimited right to treat military retirement pay according to its laws.
His argument is founded on a misunderstanding of the holding in McCarty, supra, 453 U.S. 210. The Supreme Court in McCarty addressed the question of implied preemption. Finding no express statement by Congress that state community property laws were preempted in regard to military pensions (see id., at pp. 236-237 [69 L.Ed.2d at pp. 608-609] [dis. opn.]), the court instead considered a variety of circumstantial evidence, including related statutory schemes and the objectives of the military retirement system, in determining application of state community property laws to military pensions would do such "major damage" to "clear and substantial" federal interests as to require a finding of implied preemption under the supremacy
The McCarty holding of implied preemption is thus a contextual one, taking into account all relevant facts and circumstances. Those facts and circumstances have now changed by reason of Congress's enactment of FUSFSPA. Accordingly, the question we must address here is not whether FUSFSPA expressly grants to the states the power to divide the gross amount of military pensions, but whether under the present federal scheme there remains a conflict between the federal retirement statutes and California community property rights threatening clear and substantial federal interests with grave harm. Stated differently, were McCarty to be decided after FUSFSPA, would the Supreme Court imply preemption?
Senate Report No. 97-502 expressly details the legislative intent and purpose underlying FUSFSPA. For instance, its stated primary purpose "is to remove the effect of the United States Supreme Court decision in McCarty v. McCarty, 453 U.S. 210[, supra,] ... by permitting ... courts, consistent with the appropriate laws, to once again consider military retired pay when fixing the property rights between the parties to a divorce, dissolution, annulment or legal separation...." (Sen. Rep. No. 97-502, supra, p. 1; 1982 U.S. Code Cong. & Admin. News, p. 1596.)
Any doubt as to the intended scope of the foregoing sweeping language is dispelled at page 5 of the report; 1982 United States Code Congressional and Administrative News, page 1599: "[T]he committee intends the legislation to restore the law to what it was when the courts were permitted to apply State divorce laws to military retired pay." (Italics added.) Thus, it is clear FUSFSPA's primary purpose is to remove obstacles the state courts may encounter in applying their divorce laws to military retired pay as those laws were being applied before the decision in McCarty v. McCarty, and as if that decision never existed. Pre-McCarty California decisions treated military retirement benefits like all other community property, dividing the
Not only does the legislative history of FUSFSPA document Congress's understanding that state laws characterizing military pensions as community property would apply in the same way as they did before McCarty, but even the McCarty analysis, applied after the enactment of FUSFSPA, would yield the conclusion there is no longer any implicit conflict between state laws and the federal scheme.
The grave harm to "clear and substantial" federal interests found in McCarty was premised on the belief "Congress has enacted a military retirement system designed to accomplish two major goals: to provide for the retired service member, and to meet the personnel management needs of the active military forces. The community property division of retired pay has the potential to frustrate each of these objectives." (McCarty v. McCarty, supra, 453 U.S. at pp. 232-233 [69 L.Ed.2d at p. 606].)
McCarty first reasoned that any community property division of retired pay could disrupt the carefully balanced scheme Congress had devised to encourage service members to set aside a portion of their retired pay as an annuity for surviving spouses or dependent children. (McCarty v. McCarty, supra, 453 U.S. at p. 233 [69 L.Ed.2d at p. 606].) The United States Supreme Court speculated that by diminishing the amount available to the retiree, a community property division would make it less likely the retired service member would choose to reduce his or her retired pay still further by purchasing such an annuity. Now, by defining disposable pay in FUSFSPA to exclude all annuity disbursements for beneficiaries other than the ex-spouse, Congress must be deemed to have expressly rejected this concern for disruption.
Second, McCarty suggests community property interests "`diminish that portion of the benefit Congress had said should go to the retired [service member] alone.'" (McCarty v. McCarty, supra, 453 U.S. at p. 233 [69 L.Ed.2d at p. 606].) This thought is based on language in Hisquierdo, supra, 439 U.S. at page 590 [59 L.Ed.2d at page 16], a case involving the Railroad Retirement Act which, unlike FUSFSPA, expressly states "not
Third, the McCarty majority found the value of retired pay to induce enlistment or reenlistment is diminished to the extent the service member recognizes he or she may be involuntarily transferred to a state which would divide that pay upon divorce. It found a direct "interference with the goals of encouraging orderly promotion and a youthful military...." (McCarty v. McCarty, supra, 453 U.S. at p. 235 [69 L.Ed.2d at p. 607].) On the contrary, by enacting FUSFSPA, Congress is expressly stating the extent of that interference is not found to be sufficient to preclude the states from applying their community property/family laws to military retired pay.
Thus, each of McCarty's factual predicates for finding implied preemption disappeared when FUSFSPA was enacted. Max cites no other adverse impact, substantial or otherwise, on congressional military goals to justify a finding the supremacy clause demands subordination of state laws solely because they would treat gross military retirement pay as community property.
 Max  would define the word "treat" in section 1408(c)(1), as meaning "characterize." Under this theory, Congress has prohibited the states from characterizing more than disposable pay as community property. The flaw in such an analysis is manifest when the nature of "property" rights is compared with the concept of "disposable" income. A military pension is characterized as marital property to the extent acquired during the marriage because it is viewed as deferred compensation. (See In re Marriage of Fithian, supra, 10 Cal.3d 592, 596.) That compensation was earned by the community during the marriage and, once the pension vests, becomes the "property" of the community in the generic sense. The concept of "disposable" pay or income has nothing to do with the characterization of an asset. The amount of retired pay which is "disposable" will change, perhaps yearly or even monthly. This inevitable periodic variance does not change the nature or value of the pension asset which was previously acquired by the community. Were the rule otherwise, the value of the community asset could never be determined at a time in advance of actual payment, i.e., the time of the divorce. (See In re Marriage of Emmett (1980) 109 Cal.App.3d 753 [169 Cal.Rptr. 473], applying the general rule that a military pension should be valued at the time of the divorce and awarded to the retiree, with the nonservice member spouse being compensated with other community assets.) The pension would not be the "property" of the community but would instead be transmuted into a changeable support payment to the nonservice member spouse.
We read section 1408(c)(1) as being aimed at an entirely different proposition. Direct payments were not available to ex-spouses for judgments awarding marital property interests against military retirement pay before the enactment of FUSFSPA. Section 1408 is primarily devoted to establishing a scheme to permit the ex-spouse to "garnish" retirement pay and, at the same time, to afford the military retiree similar protections previously given other retired federal employees by limiting the amount of funds subject to garnishment.
That FUSFSPA is primarily concerned with the garnishment of military retired pay is further revealed in its statutory title: Payment of retired and retainer pay in compliance with court orders. Given this focus, the provisions of section 1408 define the manner and extent to which a state court can order the service secretary to direct the military retiree's pay. Section 1408(a)(2) identifies the class of court orders to which FUSFSPA applies as those specifically providing for the payment of an amount from the disposable retired or retainer pay of a retiree, this amount being expressed in dollars or as a percentage of the disposable pay. (§ 1408(a)(2)(C).) These need not, and normally would not, be judgments or decrees, but garnishments or other court orders issued to enforce awards in judgments or decrees. After service of a court order providing for payment from the retired pay, the service secretary is limited to complying with the order by diverting funds only from the retiree's disposable pay. (§ 1408(d)(1).) This is without regard to whether the judgment underlying the served court order was for child support, alimony, attorney fees or to satisfy a division of community property. (§ 1408(a)(2).) Further, the service secretary typically may not pay out more than 50 percent of the disposable pay to satisfy the obligations to be enforced by the court order. (§ 1408(e)(1).)
Significantly, Congress recognized the 50 percent cap placed upon the service secretary's authority to comply with court orders could leave portions of a retiree's obligations for community property divisions unsatisfied. The Senate Report emphasizes: "Moreover, [FUSFSPA] makes it clear that the mere attainment of that [50 percent] ceiling in no way absolves the former member of still outstanding legal obligations for alimony, child support or other payments. Any such unsatisfied obligation may be enforced by any means available under law...." (Sen. Rep. No. 97-502, supra, p. 11; 1982 U.S. Code Cong. & Admin. News, p. 1606, italics added.) To this end, section 1408(d)(5) provides: "If a court order ... provides for a division ... of community property ... in addition to an amount of disposable retired or retainer pay, the Secretary concerned shall ... pay ... [any amount payable to the former spouse from the retiree's disposable pay]." Section 1408(e)(6) further provides: "Nothing in this section shall be construed to relieve a member of liability for the payment of alimony,
Max disputes the interpretation of section 1408(c)(1) as merely relating to enforcement of court orders. He refers to language in House of Representatives Report No. 749, 97th Congress, Second Session (1982) page 165 (1982 U.S. Code Cong. & Admin. News, p. 1570), suggesting the preliminary house version of the legislation, similar to that finally enacted in FUSFSPA, "would permit disposable military retired pay to be considered as property in divorce settlements under certain specified conditions." (Italics added.) Page 4 of Senate Report No. 97-502 (1982 U.S. Code Cong. & Admin. News, p. 1598), however, differs from the preliminary language in the House Report cited by Max. It declares the states' ability to create community property interests extends to "the military retired pay," not to disposable retired or retainer pay. The report states that after FUSFSPA marital assets would again be treated according to divorce and property laws of the respective states, subject only to the express limitations imposed by FUSFSPA. (Ibid.) Only three such limitations have been identified,
Although  in Henn v. Henn, supra, [we] determined omitted military pensions may be later divided in a partition action, [we] left open the recovery of pension payments already made. (Henn v. Henn, supra, 26 Cal.3d at pp. 332-333.) [We] declared the enforcement of the wife's right in the pension payments received since the initial adjudication does not present any danger of unjust enrichment because the husband "may seek to limit retrospective enforcement ... on an equitable estoppel theory by demonstrating that she in fact received additional support payments in lieu of a share in the pension. [Citation.]" (Id., at p. 332, fn. omitted.) Noting it may be substantially more burdensome for the husband to account for the pension payments he had received since the initial property division than to comply with a partition effected at that time, [we] stated that that problem could be "adequately addressed under the defense of laches." (Id., at pp. 332-333.)
We do not read the cases so narrowly. In Hill, the court identifies estoppel and "due process" as considerations in granting this "equitable relief." (Hill v. Hattrem, supra, 117 Cal.App.3d 569, 574.) Due process is not the type of standard "equitable defense" Virginia contends the court is limited to. Instead, it shows the concern with hardship and fairness Henn demands. The Hill court explains that "these principles may be relevant due to the potential hardship and unfairness of [the] result in this case involving litigation of newly discovered rights when substantial reliance may have been placed upon previous law." (Ibid.) Accordingly, the court stressed that on remand "it is incumbent upon [Husband] to present extrinsic evidence to the trial court of any inequities that may follow in restoring to [Wife] the full amount of her community share in the retirement benefits received to date...." Thus, in determining whether to award these retroactive benefits, the court may consider any facts relevant to the fairness of such payments. Contrary to Virginia's assertion, the court here was not limited to tailoring the form of an award upon finding no laches. Rather, the court must apply "equitable principles," both defenses and general considerations, to determine whether to enforce her community share in the retirement benefits received, whether whole or in part, and then determine whether "tailoring" is appropriate.
The [trial] court here found it would be inequitable to force Max to compensate Virginia for her past community share after he provided the sole support for their five children during their minority (except for one child during a limited time). Moreover, Virginia was not required to make any financial contribution to support four of the children and, during the period she had custody of one child, Max provided support. On this record, the court did not abuse its discretion. [End of Court of Appeal opinion.]
In conclusion, the Court of Appeal was correct in holding that following enactment of FUSFSPA, a California court has the power to award a former spouse an interest in the gross amount of a military retiree's pension which was omitted from an earlier dissolution decree. Thus, Virginia was correctly awarded 30 percent of the gross amount of Max's military pension, beginning in 1980 when she filed the complaint for partition.
The judgment of the Court of Appeal is affirmed.
Bird, C.J., Mosk, J., Broussard, J., Reynoso, J., Grodin, J., and Panelli, J., concurred.
However, "[w]hatever doubts of a philosophical nature may remain, the law is nevertheless clear: a state court has power to give an overruling decision prospective application only, and to deny it any retroactive effect." (Collins v. Webb (N.D.Cal. 1955) 133 F.Supp. 877, 879.) This principle derives from the view that judges make law rather than declare the law. Adherents to this view state that a decision of a state's highest court, though later overruled, is law nonetheless for intermediate transactions. (See Linkletter, supra, at p. 625 [14 L.Ed.2d at p. 606].)
On a similar note, Max also asserts that division of his military retirement pay is prohibited, because it is reduced compensation for reduced current services and, to the extent earned after his separation from Virginia, is not community property. However, in In re Marriage of Fithian, supra, 10 Cal.3d at page 604, we held "military retirement pay must be realistically viewed as compensation for past, not present, services." The Supreme Court in McCarty did not overrule Fithian's characterization of military retired pay as deferred compensation. (See McCarty v. McCarty, supra, 453 U.S. at p. 223 [69 L.Ed.2d at p. 600].)
Section 1408(c)(1) states: "Subject to the limitations of this section, a court may treat disposable retired or retainer pay ... as property of the member and his spouse in accordance with the law of the jurisdiction of such court."
To compound the inequity, assume further the retiree with additional income was entitled to claim substantial deductions in a given tax year resulting in no tax liability. On filing his return, the retiree would receive a tax refund of all monies previously withheld from his pension payments. Yet, under Max's theory, there is no way his ex-spouse could assert a community interest in the refund, to which she would have been entitled had there been no withholding.