The second type of disability pay a member may receive is disability compensation from the Department of Veteran's Affairs ("VA disability compensation").

Let's return to the example of Colonel Jessup, and flash back to his breakfast with the Navy Judge Advocates. Again, Colonel Jessup is advising them: "You want to investigate me, roll the dice and take your chances. I eat breakfast 300 yards from 4000 Cubans who are trained to kill me, so don't think for one second that you can come down here, flash a badge, and make me...."

Just then, one of the legs of Colonel Jessup's chair snaps. However, Colonel Jessup's lightning-quick reflexes enable him to reach out, grab the table, and stop himself from falling. He is a bit embarrassed, but uninjured.

The investigation into the adultery charge against Colonel Jessup proceeds, and the investigators find incontrovertible evidence that the Colonel had indeed committed the crime. In order to avoid a court-martial, Colonel Jessup agrees to quietly retire.

Again, for the purposes of this example, assume Colonel Jessup has an active duty base pay of $3,000 per month; thus, with 20 years active duty service, the Colonel's normal retired pay will be $1,500 per month ($3,000 x 20 years x 2.5%).

However, as part of his processing out of the military, Colonel Jessup applies for VA disability compensation, based on a number of chronic injuries he has endured over the course of his storied military career. Colonel Jessup enters the civilian world.

The former Mrs. Jessup's attorney makes sure that DFAS receives the Virginia court order awarding her 50% of Colonel Jessup's disposable retired pay. DFAS honors the order, and begins distributing Colonel Jessup's military retirement, $750 to the Colonel and $750 to the former Mrs. Jessup.

Seven months after his retirement, Colonel Jessup's application for VA disability compensation is approved. For his chronic injuries, Colonel Jessup will be entitled to receive $1,200 per month in VA disability compensation, if he waives an equivalent amount of his military retired pay.

What is the benefit to Colonel Jessup of waiving $1,200 per month of his retired pay in exchange for $1,200 per month in VA disability compensation? First, the Colonel will receive a big tax benefit. VA disability compensation, unlike military retired pay, is tax-free!

Second, the VA disability compensation offers Colonel Jessup a unique opportunity to retaliate against the former Mrs. Jessup. The USFSPA provides that the retired pay waived by Colonel Jessup in order to receive VA disability compensation is not divisible by state courts or DFAS. Thus, once the Colonel waives $1,200 of his military retired pay in exchange for $1,200 of VA disability compensation, DFAS will divide only the remaining $300 of retired pay.