Court Opinion

ID: 9950792
Source: CourtListenerOpinion
Date Created: 2024-03-14 19:19:40.091073+00
Date Added: 2024-06-11T14:36:43.662832
License: Public Domain

IN THE INTERMEDIATE COURT OF APPEALS OF WEST VIRGINIA
                                                                            FILED
                                Spring 2024 Term
                             _____________________                   March 14, 2024
                                                                        released at 3:00 p.m.
                                                                     C. CASEY FORBES, CLERK
                                 No. 23-ICA-370                   INTERMEDIATE COURT OF APPEALS
                             _____________________                       OF WEST VIRGINIA

                                BRADLEY BOWE,
                             Plaintiff Below, Petitioner,
                                          v.
                                 MELISSA BOWE,
                        Defendant Below, Respondent.
       ___________________________________________________________
                 Appeal from the Family Court of Fayette County
                     Honorable Matthew D. England, Judge
                          Case No. FC-10-2021-D-199
                                  AFFIRMED
        _________________________________________________________

                            Submitted: January 10, 2024
                               Filed: March 14, 2024

James M. Cagle, Esq.                              R. Brandon Johnson, Esq.
Cagle Law Office,                                 Wooton, Davis, Hussell & Johnson,
Charleston, West Virginia                         PLLC
Counsel for Petitioner                            Lewisburg, West Virginia
                                                  Counsel for Respondent

CHIEF JUDGE SCARR delivered the Opinion of the Court.
SCARR, CHIEF JUDGE:

              Petitioner Bradley Bowe appeals the Final Divorce Order entered by the

Family Court of Fayette County on July 20, 2023. Mr. Bowe contends that the family court

violated the Supremacy Clause of the United States Constitution by subjecting to equitable

distribution a personal account in which he commingled his Veteran’s Administration

disability benefits (“VA benefits”) with marital property from a business account.

According to Mr. Bowe, VA benefits are not subject to equitable distribution because they

are protected from attachment by federal law, so he is entitled to the entirety of the VA

benefits he received during the marriage. The family court disagreed with Mr. Bowe,

finding that the federal protections did not apply in this case because his VA benefits were

commingled and indistinguishable from other funds, and therefore equitably distributed the

bank account as marital property after subtracting as separate property what money he had

in his personal account and business account prior to the marriage.

              Having reviewed the parties’ arguments, the record on appeal, and the

controlling law, we affirm the decision of the family court. The law is clear that although

the federal protections under 38 U.S.C. § 5301 typically would protect VA benefits from

equitable distribution, that protection only exists when the VA benefits remain immediately

available for the beneficiary’s needs and are not commingled with marital assets. See

Griffith-Ball v. Ball, No. M202000509COAR3CV, 2022 WL 1509675, at *3 (Tenn. Ct.

App. May 13, 2022); In re Marriage of Green, 169 P.3d 202, 204 (Colo. App. 2007);

Bischoff v. Bischoff, 987 S.W.2d 798, 799 (Ky. Ct. App. 1998); Gray v. Gray, 922 P.2d
                                             1
615, 619–20 (Okla. 1996); Porter v. Aetna Cas. & Sur. Co., 370 U.S. 159, 160–61 (1962).

Applying the guidance of other courts considering when VA benefits are subject to

equitable distribution, we hold that when VA benefits are commingled with marital

property, they are subject to equitable distribution unless the commingling party can

establish by reliable tracing methods that a source of funds analysis can be performed to

distinguish the VA benefits from the other funds. Here, Mr. Bowe did not provide sufficient

financial information to trace the amount in his account solely attributable to his VA

benefits, so the family court was correct to subject the account to equitable distribution as

marital property. Accordingly, this Court affirms the Final Divorce Order entered by the

Family Court of Fayette County on July 20, 2023.

                I.     FACTUAL AND PROCEDURAL BACKGROUND

              Bradley and Melissa Bowe were married on May 23, 2017, and separated on

July 26, 2021. No children were born of the marriage. Mr. Bowe began receiving VA

disability benefits in July of 2010, due to a military-related medical condition. The monthly

benefits were always directly deposited into a checking account which is solely in Mr.

Bowe’s name (the “personal account”). Ms. Bowe’s name was never added to this account,

as both parties maintained separate personal bank accounts.

       Mr. Bowe owned and operated a construction business, River Valley Remodeling,

LLC (“River Valley”), and had a second bank account dedicated to that business (“River

Valley account”). During the marriage, Ms. Bowe closed her cleaning business to work

                                             2
with Mr. Bowe at River Valley, and he deposited money earned through River Valley into

the River Valley account. Mr. Bowe testified at the proceeding below that his construction

company earned at least $211,000 during the marriage. Approximately one month before

the parties separated, Mr. Bowe transferred $208,697.95 from the River Valley account

into his personal account which, up until that point, had primarily been used to directly

deposit his VA benefits. During the marriage, a total of $164,902.34 in disability payments

was deposited into Mr. Bowe’s personal account.

       The Final Divorce Order was entered on July 20, 2023. In its order, the family court

made the following findings of fact, which we paraphrase below:

       1. Mr. Bowe’s personal account was active and used by him throughout the

          marriage.

       2. On the date of marriage, Mr. Bowe’s personal account had a balance of

          $53,626.16.

       3. Mr. Bowe was the sole owner of River Valley Remodeling, LLC. During the

          parties’ first year of marriage, River Valley was operating at a deficit, but, during

          2021, it had retained earnings in the amount of $111,421. On the date of

          marriage, the River Valley account contained $100,306.47.

       4. One month prior to the parties’ separation, Mr. Bowe transferred $208,697.95

          from the River Valley account into his personal account, which increased the

          balance in his personal account to a total of $339,183.52.

                                              3
      5. The difference in the personal account’s balance between the date of marriage

          and separation is $185,250.89.

      6. Mr. Bowe testified that he earned at least $211,000 during the marriage, and

          those were the funds he transferred into his personal account.

      7. The VA disability payments were deposited into the personal account, which

          was being used to pay for food, bills, and household expenses.

      8. The disability payments were not isolated from other deposits and expenditures,

          and they were commingled with other funds in the personal account.

      9. During the month of June 2021, there were a total of $215,737.50 deposits made

          into Mr. Bowe’s personal account, some of which were redacted.

      10. Even if the family court were to undergo a “source of funds” analysis, there

          would be insufficient evidence to attempt such an accounting due to the redacted

          information.

             Based on the above findings of fact, the family court ruled that Ms. Bowe

would receive $10,000 in attorney’s fees, $10,500 for her one-half share of the marital

funds used to reduce the marital home’s mortgage, and $92,625.45 from Mr. Bowe’s

personal account. The family court arrived at $92,625.45 by subtracting the balances that

Mr. Bowe had in his accounts at the time of marriage from the balance of his personal

                                            4
account at the time of separation.1 For equitable distribution purposes, the family court

divided the resulting $185,250.89 in half, creating Ms. Bowe’s $92,625.45 share. It is from

this order that Mr. Bowe now appeals.

                             II.       STANDARD OF REVIEW

              “In reviewing . . . a final order of a family court judge, we review the
       findings of fact made by the family court judge under the clearly erroneous
       standard, and the application of law to the facts under an abuse of discretion
       standard. We review questions of law de novo.” Syl. Pt., [in part,] Carr v.
       Hancock, 216 W. Va. 474, 607 S.E.2d 803 (2004).

Amanda C. v. Christopher P., 248 W. Va. 130, 133, 887 S.E.2d 255, 258 (Ct. App. Nov.
18, 2022); accord W. Va. Code § 51-2A-14(c) (2005) (specifying standards for appellate
court review of family court order).

                                       III.   DISCUSSION

              The issue before this Court is whether VA benefits retain their protection

from “attachment, levy, or seizure by or under any legal or equitable process whatever,”

38 U.S.C. § 5301, including equitable distribution, when they are commingled with other

funds in a bank account and protected funds cannot be distinguished from other funds.

Money earned by either spouse during a marriage is typically considered as divisible

between the spouses upon their divorce as marital property. See W. Va. Code § 48-1-233(1)

       1
        $339,183.52 (the personal account’s balance at separation) - $100,306.47 (the
River Valley account’s balance before marriage) - $53,626.16 (the personal account’s
balance before marriage) = $185,250.89.
                                               5
(2001). West Virginia law has a “marked preference for characterizing the property of the

parties to a divorce action as marital property.” Syl. Pt. 3, Whiting v. Whiting, 183 W. Va.

451, 453, 396 S.E.2d 413, 415 (1990). In a divorce action, the family court follows a three-

step process: (1) the property of the spouses is divided into marital or non-marital property,

(2) then the marital property is valuated, and (3) finally the court will divide the property

between the spouses in accordance with the presumptions and principles of our law. See

id. at Syl Pt. 1, 183 W. Va. at 452–53, 396 S.E.2d at 414–15; W. Va. Code § 48-7-103

(2001).

              Although most money acquired by a spouse in a marriage is considered as

marital property and is subject to the equitable distribution process, VA benefits are a

notable exception and receive special protections under federal law:

              Payments of benefits due or to become due under any law
              administered by the Secretary shall not be assignable except to
              the extent specifically authorized by law, and such payments
              made to, or on account of, a beneficiary shall be exempt from
              taxation, shall be exempt from the claim of creditors, and shall
              not be liable to attachment, levy, or seizure by or under any
              legal or equitable process whatever, either before or after
              receipt by the beneficiary.

38 U.S.C. § 5301. Section 5301 plainly establishes that VA benefits shall not be liable to

attachment, levy, or seizure through any legal or equitable process whatever, before or after

their receipt by the beneficiary. Accordingly, VA benefits are typically protected from

equitable distribution by § 5301. See Zickefoose v. Zickefoose, 228 W. Va. 708, 712–13,

724 S.E.2d 312, 316–17 (2012). However, even the broad protections of § 5301 are not

                                              6
unlimited in scope. The Supreme Court of the United States has grappled with the extent

of the § 5301 protections of VA benefits in two primary cases.

              In Porter v. Aetna Cas. & Sur. Co., 370 U.S. 159 (1962) the Court addressed

when VA benefits lose their exemption from taxation. Although this scenario is different

than equitable distribution, the immunity stems from the same source, § 5301, so the

taxation analysis is instructive to equitable distribution. The Porter Court noted that “the

exemption spent its force when the benefit funds ‘lost the quality of moneys' and were

converted into ‘permanent investments.’” Porter, 370 U.S. at 160–61. The Court noted that

the § 5301 protections to VA benefits should be liberally construed to protect funds granted

by the Congress for the maintenance and support of the beneficiaries. Id. at 162. Analyzing

what types of funds are “for the maintenance and support of the beneficiaries,” the Court

noted that the deposits in Porter were:

              not of a speculative character nor were they time deposits at
              interest. Moreover, it affirmatively appears that at times
              petitioner drew moneys from the savings and loan fund for his
              support and maintenance requirements and that no other funds
              whatever are now available to him, his disability payments
              having been cut off. It therefore appears clear to us that the
              savings and loan deposits here, rather than being investments,
              are the only funds presently available to meet petitioner's
              needs.

Id. Porter’s analysis instructs us to examine whether the funds are being used in a

speculative fashion, and whether they are available to meet the beneficiary’s needs. The

Court clarified this analysis when it held that investments made with soldier’s benefits lose

their protections:

                                             7
              we think it very clear that there was an end to the exemption
              when they lost the quality of moneys and were converted into
              land and buildings. The statute speaks of ‘compensation,
              insurance, and maintenance and support allowance payable’ to
              the veteran, and declares that these shall be exempt. We see no
              token of a purpose to extend a like immunity to permanent
              investments or the fruits of business enterprises.

Carrier v. Bryant, 306 U.S. 545, 549 (1939). Taking guidance from these cases, we must

conclude that § 5301’s protections apply to VA benefits unless they are no longer

immediately available to meet the beneficiary’s needs, or have been commingled such that

the VA benefits cannot be distinguished from the non-protected funds.

              Other jurisdictions have applied the principles of Porter and Carrier to cases

regarding when VA benefits lose their § 5301 protections, some of which we find helpful

to the case before us. In Hawes v. Stephens, 964 F.3d 412 (5th Cir. 2020), the Fifth Circuit

Court of Appeals held § 5301 does not prevent the deduction of funds from a prison inmate

trust account funded by VA benefits when the VA benefits are commingled such that it is

impossible to know whether the deducted funds were VA benefits. See Hawes, 964 F.3d at

417. Additionally, other courts have consistently ruled that VA benefits lose their § 5301

protections from equitable distribution when they are used to purchase property, be it real

or personal. See Bischoff, 987 S.W.2d at 799; Gray, 922 P.2d at 619–20; Pfeil v. Pfeil, 115

Wis. 2d 502, 506–08, 341 N.W.2d 699, 702–03 (Wis. Ct. App. 1983); In re Marriage of

Hapaniewski, 438 N.E.2d 466, 471 (Ill. App. Ct. 1982).

                                             8
              We find the case Griffith-Ball v. Ball to be particularly instructive, as both

Griffith-Ball and this case concern whether § 5301 protects VA benefits from equitable

division when they are commingled with marital property in a bank account. See Griffith-

Ball, 2022 WL 1509675, at *3. In Griffith-Ball, the husband received VA benefits, but they

were held in a bank account that also contained rent income, which was marital property.

Id. The Tennessee Court of Appeals held that the husband placed the identity of his VA

benefits in jeopardy when he combined them with marital rent income, and thus it was his

burden to show that the VA benefits continued to be segregated or could be readily traced.

Id. at *4. As the husband had failed to prove his burden to show that the commingled VA

benefits could be readily traced, the court concluded that the account was marital property

subject to equitable division. Id.

              In this case, the only issue that need be addressed is the effect of

commingling upon the § 5301 protections to VA benefits, as whether or not they were

immediately available due to the purchase of assets or investments is not at issue here. Mr.

Bowe argues that § 5301 serves as an absolute bar upon the court’s ability to alienate VA

benefits from a beneficiary, claiming that the family court’s finding that the commingled

funds were marital property contravened federal law, and was thus prohibited by the

Supremacy Clause. Were Mr. Bowe discussing funds that could actually be identified as

VA benefits, he would likely be correct. See Zickefoose, 228 W. Va. at 712–13, 724 S.E.2d

at 316–17. However, Mr. Bowe’s arguments are misplaced, because to be protected by §

5301, the funds need to be identifiable as VA benefits, either by being segregated or

                                             9
through a source of funds analysis. Applying the guidance from other courts to this case,

we hold that when VA benefits are commingled with marital property, they are to be

considered marital property subject to equitable distribution, unless the commingling party

can establish and distinguish through a source of funds analysis the VA benefits from non-

protected monies. Otherwise, the protections of § 5301 are lost when the VA benefits

become undistinguishable from other funds.2

              To rule otherwise would allow a VA benefits recipient with insufficient

financial records to shield all their income from taxation, creditors, and “attachment, levy,

or seizure by or under any legal or equitable process whatever,” an absurd result surely not

intended by Congress. To protect VA benefits from equitable distribution in a divorce, one

can keep the VA benefits segregated from other funds in a separate account, or in the case

of a commingled account, keep sufficient records to allow for a meaningful source of funds

analysis to be easily applied to distinguish any VA benefits. Here, Mr. Bowe failed to take

these steps. The law does not reward insufficient financial disclosures with a financial

windfall by protecting a substantial sum of marital property from equitable distribution.

       2
        Although the family court’s order and the parties’ briefs note the expenditure of
VA benefits for personal and household expenses during the marriage, the actual use of the
funds taken from the account has little bearing on our analysis. The important factors to
our analysis are whether the VA benefits remaining in the account have been commingled
with other funds, and if so, whether they can be distinguished by a source of funds analysis.
                                             10
              To perform a source of funds analysis to determine whether commingled VA

benefits retain § 5301 protections, parties and courts should use standard, generally

accepted accounting principles as the “reliable tracing methods.” Tracing the source of

funds is not a novel concept to courts nor accountants, and there are already several known

generally accepted and reliable source of funds tracing methods.3 However, as the family

court was unable to apply any tracing method to Mr. Bowe’s commingled VA benefits, we

need not analyze the most appropriate tracing method to apply to this case. It should be

noted that there could be substantially different outcomes in a case depending upon which

tracing method is utilized. On this matter, we believe that the selection of the most equitable

and appropriate reliable tracing method to be used in a given case is best left to the

3
   Some of the generally accepted reliable tracing methods include: (1) the lowest
intermediate balance rule (“LIBR”), (2) pro rata distribution, (3) first in, first out (“FIFO”)
and (4) last in, first out (“LIFO”). Jason Wright, Marylee Robinson, & Jack Carriglio,
Examining the most commonly accepted equitable tracing methods in bankruptcy
proceedings.,        AM .      BANKR.        INST.      J.      (Sept.          17,       2018),
https://www.stout.com/en/insights/article/a-taxonomy-tracing-rules-one-size-does-not-fit-
all. LIBR assumes that non-protected funds are always spent before any protected funds,
so other, non-protected funds would be presumed to be spent before VA benefits. The pro
rata method constructs relative percentages of protected funds, the VA benefits, to other
funds in an account, and then allocates those percentages to any subsequent withdraws. Id.
The FIFO rule presumes that funds are paid out in the order in which the deposits were
received, regardless of whether the deposits were traced funds or not. Id. In contrast, the
LIFO rule presumes that funds from an account are paid out by the most recently deposited
funds. Id. These methods have been used by other courts in bankruptcy cases to trace the
source of funds in a commingled account, and we suggest they may be suitable for
consideration when tracing the amount of VA benefits in a commingled account. See, e.g.,
In re Mississippi Valley Livestock, Inc., 745 F.3d 299, 308 (7th Cir. 2014); In re Dameron,
155 F.3d 718, 724 (4th Cir. 1998); Cmmw. Land Title Ins. Co. v. Doe, 577 A.2d 1358, 1360
(Pa. Super. 1990); United States v. Intercontinental Indus., Inc., 635 F.2d 1215, 1220 (6th
Cir. 1980).

                                              11
discretion of the trial court. See United States v. Henshaw, 388 F.3d 738, 741 (10th Cir.

2004).

              Here, Mr. Bowe received VA benefits into his personal account, and then

commingled that money with marital property by transferring approximately $208,000

from the River Valley account into his personal account. Mr. Bowe was the commingling

party, so to preserve his VA benefits as separate property under § 5301, it was his burden

to show that a source of funds tracing analysis could be performed to distinguish the VA

benefits from the other funds in his personal account. However, Mr. Bowe failed to carry

his burden when he did not provide sufficient financial information to perform a source of

funds analysis to trace and identify his VA benefits, such as by redacting the source of

some of the deposits in his personal account. Petitioner’s VA benefits were thus rendered

unidentifiable and lost the protection of § 5301, and the family court was therefore correct

to subject the personal account to equitable distribution.

              Mr. Bowe also argues that all the VA benefits he accrued during the marriage

should remain separate property and should have been subtracted from the amount of

marital property the family court divided in equitable distribution.4 We find this argument

         It should be noted that Petitioner’s argument here is essentially an application of
         4

the LIBR tracing method with the replenishment principle. According to the replenishment
principle, after the depletion of protected funds, a deposit will replenish the amount of the
                                             12
unconvincing. Whenever VA benefits have been spent by a spouse on personal or real

property, § 5301’s protections do not apply to that property, as that money, having been

already spent, is plainly no longer immediately available to meet the beneficiary’s needs.

See Porter, 370 U.S. at 162. Thus, we conclude that property purchased with VA benefits

is subject to the typical rules regarding marital property and equitable distribution. A

recipient of VA benefits cannot claw back funds spent during their marriage, and other

courts have held similarly when faced with this issue. See Bischoff, 987 S.W.2d at 799;

Gray, 922 P.2d at 619–20.

              Mr. Bowe’s VA benefits were deposited into his personal account, and

money from that account was used for food, bills, and other household expenses throughout

the parties’ marriage. Those expenses are not refundable because they might have been

funded with VA benefits. Section 5301’s protections only apply to any VA benefits that

remain unspent and are immediately available for Mr. Bowe’s needs as the beneficiary.

This result accords with our law’s “marked preference for characterizing the property of

the parties to a divorce action as marital property.” See Whiting, Syl. Pt. 3, 183 W. Va. at

453, 396 S.E.2d at 415.

protected funds regardless of whether the new funds would otherwise be considered
protected. Wright, Robinson, & Carriglio, supra note 3. Although our holding in this case
does not reach the actual selection or application of tracing methods, courts should be wary
that applying the replenishment principle in a LIBR analysis tracing VA benefits could
contradict Porter by applying § 5301 protections to spent funds not immediately available
for the beneficiary’s needs.
                                            13
              We conclude that, although VA benefits would typically be protected from

equitable distribution pursuant to 38 U.S.C. § 5301, they lose those protections when they

are commingled and become undistinguishable from other funds. If VA benefits are

commingled with other funds in an account and cannot be identified by reliable tracing

methods, the account may be identified as marital property and be subject to equitable

distribution. Mr. Bowe commingled his VA benefits, then failed to provide sufficient

financial information for the family court to perform a meaningful source of funds analysis.

Accordingly, the family court did not abuse its discretion in subjecting Mr. Bowe’s

personal account to equitable distribution as marital property.

                                   IV.    CONCLUSION

              For the foregoing reasons, the family court’s July 20, 2023, Final Divorce

Order is affirmed.

                                                                                 Affirmed.

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