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controls how income from property interests are taxed, State law
controls how property interests are created. United States v.
Mitchell, 403 U.S. 190 (1971). It is clear that, at the time
petitioner’s divorce decree was entered, the State court did not
have the power to order a transfer of an ownership interest in
Mr. Newell’s military retirement benefits to petitioner. Va.
Code Ann. sec. 20-107.3(B) and (C) (Michie 1983); Lowe v. Lowe,
357 S.E.2d 31 (Va. 1987). Rather, the court merely had the
authority to grant petitioner a monetary award; any transfer of
an ownership interest in the pension only could have been
effected by Mr. Newell with permission from the court. Va. Code
Ann. sec. 20-107.3(D) (Michie 1983); Lowe v. Lowe, supra.3 There
has been no suggestion of such a transfer in this case.
We note that, at the time of petitioner’s divorce, Federal
law had been revised to allow States to treat military pensions
of married individuals as property held either jointly or
separately by one or both spouses. Uniformed Services Former
3Cf. Pfister v. Commissioner, supra, in which we found that
a Virginia divorce decree did transfer an ownership interest in a
military retirement pension. In that case, we relied upon Va.
Code sec. 20-107.3(H), which allowed a court to ratify and
incorporate an agreement between the parties into the divorce
decree. The ownership interest in Pfister was transferred
pursuant to such an agreement between the parties--incorporated
into the divorce decree--which provided that the spouse receiving
the interest would “be owner of, and receive, one-half of
husband’s disposable retired or retainer pay.” Id.
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