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64 (Va. Ct. App. 1987), and Sawyer v. Sawyer, 335 S.E.2d 277 (Va.
Ct. App. 1985), are not on point. These cases involve the
question whether a Virginia court can order an equitable division
of pension benefits without agreement of the parties. Here, the
parties entered into an agreement dividing the ownership interest
of the former husband’s military retirement benefit. Pursuant to
Va. Code Ann. sections 20-107.3(H) and 20-109.1, the State court
had the authority and discretion to affirm, ratify, or
incorporate by reference into the final order this valid
agreement by the parties. See Aster v. Gross, supra; Parra v.
Parra, supra; see also Mozley v. Commissioner, T.C. Memo. 2001-
125, affd. 22 Fed. Appx. 214 (4th Cir. 2001), cert. pending No.
01-10303 (May 16, 2002).
Finally, petitioner’s argument that section 1041 renders
receipt of the pension payments nontaxable is misguided. Section
1041 deals with transfers of property between spouses or incident
to divorce. In general, it provides that (1) no gain or loss
shall be recognized to the transferor on such a transfer and (2)
the transferee succeeds to the transferor’s basis. See Weir v
Commissioner, T.C. Memo. 2001-184. Under Virginia law, and prior
to divorce, the rights to the pension that accrued to
petitioner’s former husband were solely his. In accordance with
USFSPA and the State court’s decree incorporating the parties’
agreement, however, petitioner received as her separate property,
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