A taxpayer who, in connection with a divorce, is awarded an ownership interest in his or her ex-spouse's military retirement pay, is treated as receiving pension payments (includible as pension income in the taxpayer's gross income under Code Sec. 61(a)(11)), even though the retirement pay was earned by the exspouse.

Thus, where, in connection with a divorce, a taxpayer received a portion of her ex-spouse's military retirement pay as her share of community property, that portion was pension income to her under Code Sec. 61(a)(11).

Similarly, where, in a non-community property state (VA), a taxpayer was awarded ownership of a portion of her ex-spouse's military retirement pay in connection with a divorce, that portion was taxable to her as pension income. This is because pension payments are gross income to the party who owns the right to those payments pursuant to a division of property in a divorce.

(Pfister, Gay M., (2002) TC Memo 2002-198) A district court in the Fifth Circuit came to the same conclusion. (Chiarello, Emily D. v. IRS, (2006, DC TX)) The imposition of income tax withholding on the retiree does not prevent the amount paid to the former spouse from being included in gross income. (Mitchell, Maria Antoinette Walton, (2004) TC Summary Opinion 2004-160)