Source: https://law.justia.com/cases/california/supreme-court/3d/27/765.html
Timestamp: 2019-04-26 04:48:37+00:00

Document:
Cavalletto, Webster, Mullen & McCaughey and Jeffrey C. Nelson for Appellant Wife.
Gertrude D. Chern as Amicus Curiae on behalf of Appellant Wife.
Price, Postel & Parma, Gary R. Ricks and J. Terry Schwartz for Appellant Husband.
Allen R. McMahon and Loretta H. Hellen as Amici Curiae on behalf of Appellant Husband.
The principal issue in this dissolution action is whether the Supreme Court in Hisquierdo v. Hisquierdo (1979) 439 U.S. 572 [59 L. Ed. 2d 1, 99 S. Ct. 802], implicitly held that community property states could not apply their laws in dividing as part of the community a husband's military pension, insurance policy, and disability pay which he received in lieu of retirement.
Following his graduation from the United States Naval Academy in 1944, Mr. Milhan married Mrs. Milhan. The Milhans' marriage was dissolved in 1970, five years after Mr. Milhan retired from the Navy and began receiving retirement pay. In 1972, Mr. Milhan was awarded as separate property his retirement pension and two military insurance policies which had been purchased with community funds.
This court issued its remittitur, and a hearing was held by the trial court. Mr. Milhan testified that he had elected to receive $106 disability compensation from the Veterans' Administration in lieu of an equal amount of retirement pay. The trial court awarded Mrs. Milhan half of Mr. Milhan's retirement pay, as well as a sum equivalent to half of the cash surrender value of the military insurance policies at the time of trial. Mrs. Milhan was also awarded restitution for one-half of the retirement pay received by Mr. Milhan after May 2, 1972. fn. 1 Mr. Milhan's Veterans' Administration disability pay was not included in the judgment.
Mr. Milhan contends that Hisquierdo, supra, 439 U.S. 572, governs the assets divided by the trial court in this case.  Specifically, he claims that neither military retirement pay nor disability pay received in lieu thereof may be divided as community property. Further, California courts may not award an equivalent amount from other property to compensate for a community property interest in military insurance policies. In effect, Mr. Milhan contends that Hisquierdo implicitly disapproved this court's holdings in In re Marriage of Fithian, supra, 10 Cal. 3d 592, fn. 7 In re Marriage of Stenquist (1978) 21 Cal. 3d 779 [148 Cal. Rptr. 9, 582 P.2d 96], and Milhan I, supra, 13 Cal. 3d 129. However, the principles which required preemption in Hisquierdo yield a different result when applied to the facts of this case.
Hisquierdo is also consistent with this court's conclusion in Fithian that Congress did not intend "to preserve the benefits of the [military retirement] system as the separate property of the recipient." (Fithian, supra, 10 Cal.3d at p. 599.) The Supreme Court's finding of congressional intent to preempt community property laws applicable to railroad retirement pensions rested on two principal grounds. Neither applies to military pensions.
Both the structure and the legislative history of the annuity plans available for military spouses indicate that they were designed to alleviate hardship caused by the serviceman's death. (See 1972 U.S. Code Cong. & Admin. News, at pp. 3288-3328.) Thus in contrast to the Railroad Retirement System, Congress did not enact a spousal benefit designed to reflect the contribution of military spouses to the marital community. Accordingly, there is no basis for inferring a congressional intent to cut off the California community property rights of military spouses. As stated in Fithian, supra, 10 Cal.3d at page 600, "Congress' concern for the welfare of soldiers' widows sheds little light on Congress' attitude toward the community treatment of retirement benefits, particularly since those benefits do not survive the serviceman regardless of his marital status at death."
 Mr. Milhan opted to receive a pension administered by the Veterans' Administration. This pension is computed solely on the basis of his disability. (See 38 U.S.C. §§ 314, 334.) In order to receive this benefit, Mr. Milhan waived his right to an equivalent amount of retirement pay. (38 U.S.C. § 3105.) The reasoning of Stenquist applies with equal force to this situation and to title 10 disability benefits. However classified for administrative purposes, disability benefits under Stenquist are separate property in California only insofar as they exceed the amount of retirement pay waived. Significantly, Mr. Milhan does not appear to contest this proposition. Instead, he contends that under Hisquierdo the rule in Stenquist violates the supremacy clause of the United States Constitution.
This contention lacks merit. Insofar as disability benefits replace retirement pay waived as a condition of receipt, they perform the same functions as retirement pay. (Stenquist, supra, 21 Cal.3d at p. 787.) Since the division of military retirement pay as community property does not violate federal supremacy, it follows that no substantial federal interest is damaged by the division of "disability" benefits which serve identical purposes.
 Next, Mr. Milhan contends that under Hisquierdo federal supremacy precludes an award to Mrs. Milhan of property equivalent to her community interest in the military insurance policies. He argues that 38 United States Code section 3101(a) is analogous to the statute in Hisquierdo which precluded the assertion of state community property claims against railroad pensions. fn. 13 However, section 3101(a) applies only to the "[p]ayments of benefits due" under laws administered by the Veterans' Administration. While this language shields insurance policy proceeds paid to the named beneficiary, it does not extend any protection to the insured as such. So long as there is no interference with the beneficiary's exclusive enjoyment of the proceeds, section 3101(a) poses no bar to any state claim.
Mr. Milhan asserts three additional errors in the judgment. First, he contends that the trial court abused its discretion in refusing to credit certain payments against the award of back retirement pay. (See Schubert v. Bates (1947) 30 Cal. 2d 785, 789 [185 P.2d 793].)  However, setoff is not ordinarily available where restitution of property awarded under a judgment subsequently reversed is sought by motion, rather than in an independent action. (See Buckman v. Tucker (1937) 9 Cal. 2d 403, 406 [71 P.2d 69].) Though restitution may be denied where necessary to avoid inequity (see Schubert v. Bates, supra, 30 Cal.2d at p. 791; Palpar, Inc. v. Thayer (1949) 91 Cal. App. 2d 176, 178 [204 P.2d 654]), the record does not show that the trial court abused its discretion in granting restitution in this case.
 Finally, Mr. Milhan contends that the trial court erred in awarding Mrs. Milhan $1,500 attorneys' fees without an adequate showing of need. Civil Code section 4370 authorizes the award of such attorneys' fees "as may be reasonably necessary" to maintain the proceeding. An award pursuant to this section "is within the trial court's discretion, and will be disturbed on appeal only upon a clear showing of abuse." (In re Marriage of Aufmuth (1979) 89 Cal. App. 3d 446, 466 [152 Cal. Rptr. 668]; In re Marriage of Janssen (1975) 48 Cal. App. 3d 425, 428 [121 Cal. Rptr. 701].) The record indicates that Mrs. Milhan had a net monthly income of only $770, while her monthly expenses were $1,119. Exclusive of attorneys' fees, Mrs. Milhan's debts were $60,000. Including half of the community property from her present marriage, Mrs. Milhan's assets amounted to $21,950. This evidence was sufficient to support the trial court's finding of need. There was no abuse of discretion.
Congress has not precluded the application of California community property law to military retirement pay, military insurance policies, or disability pay to the extent received in lieu of retirement.
That part of the judgment which failed to award Mrs. Milhan a community property share in the Veterans' Administration disability pay received by Mr. Milhan in lieu of retirement pay, and failed to divide the retirement pay from the date of trial in 1970, is reversed. In all other respects, the judgment is affirmed. Mr. Milhan shall assume all costs on appeal.
FN 1. The trial court awarded Mrs. Milhan the legal rate of interest on her half of the retirement pay due on and after May 2, 1972, as well as on the amount due in lieu of her share in the insurance policies. The trial court provided that the interest would be computed from the date on which this court's remittitur was filed. Mr. Milhan was allowed to make monthly payments totalling $300 in lieu of lump sum restitution of retirement benefits received between May 2, 1972, and February 1976, and in lieu of immediate payment of half of the cash surrender value of the insurance policies. Mrs. Milhan was awarded attorneys' fees of $1,500.
FN 2. The Supreme Court reversed the decision of this court in In re Marriage of Hisquierdo (1977) 19 Cal. 3d 613 [139 Cal. Rptr. 590, 566 P.2d 224], and remanded the case for further proceedings not inconsistent with its opinion.
FN 3. In addition, Mr. Milhan argued that the trial court erred in failing to make any provision regarding his obligations with respect to the military retirement pay if Mrs. Milhan should predecease him. However, California law is clear that "the heirs of the ex-wife are not entitled to the portion of the retirement benefits the ex-wife would have received had she lived." (In re Marriage of Fithian, supra, 10 Cal.3d at p. 601.) There was no need for the trial court to restate this principle in the judgment.
The broad language of 45 United States Code section 231m protects this congressional allocation of benefits: "Notwithstanding any other law of the United States, or of any State, territory, or the District of Columbia, no annuity or supplemental annuity shall be assignable or be subject to any tax or to garnishment, attachment, or other legal process under any circumstances whatsoever, nor shall the payment thereof be anticipated. ..."
FN 7. Citing Gorman v. Gorman (1979) 90 Cal. App. 3d 454 [153 Cal. Rptr. 479], this court indicated in Henn v. Henn (1980) 26 Cal. 3d 323, at page 328, footnote 3 [161 Cal. Rptr. 502, 605 P.2d 10], that Hisquierdo does "not compel reconsideration of our holding in Fithian. ..." However, the issue was not briefed by the parties in Henn, and the court's reasons for so holding have not been fully explained.
FN 8. Mr. Milhan repeats many of the arguments rejected in Fithian. For example, he contends that application of state community property principles to military pensions is inconsistent with the right of servicemen to designate a beneficiary to receive pay arrearages or other amounts due on their death in settlement of their accounts. (10 U.S.C. § 2771.) Further, he argues that California law interferes with the right of servicemen to use a portion of their pay to purchase annuities payable on their death to beneficiaries including persons other than a spouse. (10 U.S.C. § 1431 et seq. [Retired Serviceman's Family Protection Plan]; 10 U.S.C. § 1447 et seq. [Survivor Benefit Plan].) Since Hisquierdo sheds no new light on these contentions, there is no need to supplement the discussion in Fithian.
FN 9. 10 United States Code section 1440 applies only to annuities payable under the Retired Serviceman's Family Protection Plan. (10 U.S.C. § 1431 et seq.) It is not applicable to Mr. Milhan's Navy retirement pay. (Accord Czarnecki v. Czarnecki (1979) 123 Ariz. 466 [600 P.2d 1098]; In re Marriage of Musser (1979) 70 Ill.App.3d 706 [388 N.E.2d 1289].) Since military retirement pensions are not administered by the Veterans' Administration, they are also outside the scope of 38 United States Code section 3101. Mr. Milhan cites only four other provisions. 37 United States Code section 701(a) and (b) allows Army and Air Force officers and certain contract surgeons to assign their pay pursuant to appropriate regulations, while section 701(c) forbids enlisted personnel from these services from doing so. 31 United States Code section 203 applies only to the transfer and assignment of claims against the United States.
Mr. Milhan forcefully contends that a congressional intent to preempt state community property law applicable to military retirement pay is established by two recent amendments to the Social Security Act, codified at 42 United States Code sections 659 and 662(c). These amendments apply to 45 United States Code section 231m and "similar provisions in all other federal benefit plans." (Hisquierdo, supra, 439 U.S. at p. 576 [59 L.Ed.2d at p. 7].) The amendments create an exception for child support and alimony claims, with "alimony" defined to explicitly exclude community property claims. However, since military retirement pay is not shielded by any statute similar to 45 United States Code section 231m, the scope of the exception created by these amendments, and the policy implications, if any, to be drawn are not material to this case.
FN 10. An unmarried serviceman with no dependent children may designate any natural person with an insurable interest in him as the beneficiary under the Survivor Benefit Plan. (10 U.S.C. §§ 1450(a)(4), 1448(b).) Mr. Milhan allots $7.66 out of each retirement paycheck towards the purchase of an annuity payable to his surviving children until they reach 18 years of age. As of the postremittitur hearing, only one child remained eligible to receive this benefit. Mrs. Milhan has not been designated as a beneficiary.
Significantly, this provision does not apply to disability benefits distributed as retirement pay under title 10 of the United States Code, since these benefits are not administered by the Veterans' Administration. This limited scope militates against a finding that section 3101(a) manifests a congressional intent to preempt application of state community property claims to all payments classified as "disability" benefits by federal statutes.
FN 13. Ante, page 776, footnote 12.
Mr. Milhan cites former section 454a in 38 United States Code, which has been repealed. 38 United States Code section 3101(a) is the analogue to the former section 454a.

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