Flashbacks in gaming

I have this idea for a game: The characters are all veteran soldiers and the war that has gone on for generations has just ended. Given detached duty, the PC's must make their way home. On the way, they must deal with the demons of their past and the aftermath of a conflict that seemed would never end. There may be ongoing battles, refugees, rogue units and the emerging post-war politics It'sWing Commander IV meets the Macross anime with some bits of the TV showsLost and Firefly thrown in. Why Macross? I'm a fan of transforming fighter-planes after all :-)

Part of the idea is that the characters are all very experienced, veteran heroes from the conflict. They've been at war for years and carry with them a wealth of experiences both good and bad. As the story goes forward, it also casts back into the past of the player characters. We learn about their past as they also strive to creating a new future. This may manifests in two ways that I see

1) at moments of crisis in the 'modern' timeline, when PC's need a dice boost or other boon, they can invoke a quick flashback in narrative form; they then must eventually pay back that karmic debt by more roleplaying after the immediate conflict.

2) given that the characters are veterans of the conflict, there's not a theater of that conflict they haven't been to, so everywhere they go there should be backgrounds, contacts and unresolved issues located there. These hooks should mostly be up to the individual players to bring into the game, but also available to the GM.

As a game mechanic, how does one handle flashback as a system? Few games deal with this directly. The only one that comes to mind is: Fireborn, where you simultaneously play ancient dragons in the age before and their human re-incarnation in the modern age. I don't own this game, but it's available cheap on DriveThruRPG, so maybe I should go ahead and get it.

So I open this post to discussion: How do/would you handle flashbacks in a game?