Court Opinion

ID: 4516573
Source: CourtListenerOpinion
Date Created: 2020-03-16 12:05:53.362236+00
Date Added: 2024-06-11T08:34:52.549428
License: Public Domain

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19-P-109                                              Appeals Court

                   KATHY STACY   vs.   BARRY STACY.

                           No. 19-P-109.

      Worcester.       November 4, 2019.    -   March 13, 2020.

       Present:    Green, C.J., McDonough, & Englander, JJ.

Federal Preemption. Veteran. Constitutional Law, Federal
     preemption, Veteran. Jurisdiction, Federal preemption.
     Statute, Federal preemption. Divorce and Separation,
     Division of property.

     Complaint for divorce filed in the Worcester Division of
the Probate and Family Court Department on June 2, 2017.

    The case was heard by Kathryn M. Bailey, J.

    Anne E. Grenier for the husband.
    Saman S. Wilcox for the wife.

    ENGLANDER, J.    This case presents the question whether

Federal law preempts a Massachusetts judge from dividing a

spouse's Federal veterans' disability benefits as part of the

marital estate, in connection with the equitable distribution of

the estate upon divorce under G. L. c. 208, § 34.      Barry Stacy
                                                                      2

(husband) appeals from an amended divorce judgment that awarded

Kathy Stacy (wife) one-half of his personal bank account

containing a retroactive, lump sum veterans' disability payment

he had received from the United States Department of Veterans

Affairs (VA) during the marriage.     The husband contends, and we

agree, that the award to the wife is preempted by Federal law

governing veterans' disability payments.     See 38 U.S.C.

§ 5301(a)(1) (2012).     We accordingly vacate the portion of the

amended divorce judgment pertaining to property division, and

remand the matter for further proceedings.

     Background.     We summarize the relevant facts found by the

judge, supplementing them with undisputed evidence in the

record.     See Pierce v. Pierce, 455 Mass. 286, 288 (2009).    The

parties began living together in 1976, and were married in 1982.

No children were born of the marriage; however, both parties

have children from prior marriages.     Prior to the marriage, the

husband was on active duty in the United States Navy from 1960

to 1964, during which time he suffered a facial fracture in his

sinus region.    The husband filed a disability claim with the VA

in 1981.1    The VA eventually deemed the husband ten percent

disabled in 2004, and he began receiving VA disability benefits

of $130 per month.     While it appears that the husband's VA

     1 Among the husband's complaints were sleep apnea, chronic
sinus infections, and headaches.
                                                                    3

disability payments were initially deposited in the parties'

joint bank account, all payments from July 2014 onward were

deposited in the husband's personal bank account at Millbury

Credit Union (MCU).

     In July 2015, the VA changed the husband's status to thirty

percent disabled with one dependent (i.e., the wife),

retroactive to 2004.    In July 2016, the husband received a lump

sum payment from the VA of $119,403.96, representing his

retroactive VA disability benefits, which was deposited in his

personal MCU account.    In August 2017, the husband received a

second lump sum payment from the VA of $12,792.62, representing

the retroactive additional spousal benefit, which was also

deposited in his personal MCU account.2

     The wife initiated divorce proceedings in June 2017, and a

trial was held in March 2018.    The judge found that the VA

disability funds deposited in the husband's personal MCU account

were marital property subject to equitable distribution under

G. L. c. 208, § 34, and ordered those funds divided equally

     2 As discussed   infra, this additional statutory benefit is
paid to the veteran   because he has a dependent. The veteran is
the beneficiary and   payee, and the spouse has no claim to it.
Sharp v. Nicholson,   403 F.3d 1324, 1326-1327 (Fed. Cir. 2005).
                                                                      4

between the parties.   The present appeal by the husband

followed.3

     Discussion.   We begin with what this case is not about.    We

deal here solely with veterans' disability benefits.   We are not

addressing any other type of benefit payable under Federal law,

as to which Congress may have directed a different result.      Nor

are we addressing the ability of State courts to order veterans'

disability benefits used to satisfy child support obligations;

the United States Supreme Court has previously ruled that State

courts may access veterans' disability payments in child support

enforcement proceedings.   Rose v. Rose, 481 U.S. 619, 634

(1987).

     Instead, the question before us is whether Federal law

preempts Massachusetts courts from dividing veterans' disability

benefits as part of the marital estate upon divorce.   To answer

this question we must examine the State law at issue and the

applicable Federal law, and then determine whether they are in

conflict under the preemption standards established by the

     3 The husband raised the Federal preemption issue before the
trial judge in a postjudgment motion. Although we may decline
to consider an issue raised for the first time after trial, see
R.W. Granger & Sons, Inc. v. J & S Insulation, Inc., 435 Mass.
66, 73 (2001), here we think it appropriate to address the
issue. The parties addressed the preemption issue in briefing
in the trial court and in this court, and the wife has not
claimed waiver or objected to this court's consideration of the
issue.
                                                                     5

United States Supreme Court.    See Hisquierdo v. Hisquierdo, 439
U.S. 572, 581 (1979).    We review questions of Federal preemption

de novo.   See Hitachi High Techs. Am., Inc. v. Bowler, 455 Mass.
261, 263 (2009).

     Beginning with the Massachusetts law, there is no question

the husband's bank account at issue ordinarily would be part of

the marital estate:     "General Laws c. 208, § 34, empowers the

courts to deal broadly with property and its equitable division

incident to a divorce proceeding."    Rice v. Rice, 372 Mass. 398,

401 (1977).    See G. L. c. 208, § 34.   To that end, a judge "may

assign to either [spouse] all or any part of the estate of the

other," including any "separate nonmarital property," because

"[a] party's 'estate' by definition includes all property to

which he holds title, however acquired."     Rice, supra at 400,

401, quoting G. L. c. 208, § 34.4    The husband's MCU account thus

was part of the marital estate, unless Federal law prohibits

that result.

     As to the applicable Federal law, the bases and procedures

for the payment of veterans' disability benefits are set forth

     4 "Upon divorce . . . the court may assign to either husband
or wife all or any part of the estate of the other, including
but not limited to, all vested and nonvested benefits, rights
and funds accrued during the marriage and which shall include,
but not be limited to, retirement benefits, military retirement
benefits if qualified under and to the extent provided by
federal law, pension, profit–sharing, annuity, deferred
compensation and insurance." G. L. c. 208, § 34.
                                                                      6

in title 38 of the United States Code.   Veterans who suffer from

a disability stemming from active military duty are entitled to

receive such benefits, with the amount of compensation

determined by the severity of the disability.   See 38 U.S.C.

§ 1114 (2012) (rates of wartime disability compensation); 38

U.S.C. § 1134 (2012) (rates of peacetime disability

compensation).   As noted, the husband has been receiving such

benefits since 2004, and has deposited them in a separate

account, in his own name, since 2014.

    Since at least the 1870s the payments made to disabled

veterans have been protected by a so-called anti-attachment

statute, the current version being 38 U.S.C. § 5301(a)(1).      See

Act of Congress March 3, 1873, Rev. St. § 4747; United States v.

Hall, 98 U.S. 343, 349-355 (1878).   Section 5301(a)(1) provides,

in relevant part:

    "Payments of benefits due or to become due under any law
    administered by the Secretary [of Veterans Affairs] 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" (emphasis added).

As is evident from its language, the general purpose of

§ 5301(a)(1) is to ensure that veterans' disability benefits

actually reach their intended beneficiaries.    See Hall, supra at

349-351.   Notably, similar anti-attachment provisions protect
                                                                     7

other types of Federal benefits.     See, e.g., 42 U.S.C. § 407(a)

(2012) (protecting Social Security benefits).

    The question whether a particular Federal benefit may be

divided upon divorce is not novel.    Indeed, the United States

Supreme Court has addressed related issues on many occasions.

Thus, in Hisquierdo, the Court ruled that a railroad retirement

benefit payable pursuant to Federal law, which the husband

expected to receive postdivorce, could not be divided as part of

his California divorce proceeding. 439 U.S. at 582-585.   Other

Supreme Court opinions have addressed preemption issues in

connection with, for example, military retirement pay, see

McCarty v. McCarty, 453 U.S. 210 (1981) (Federal law preempts

State courts from dividing military retirement pay), and the

National Service Life Insurance Act, see Wissner v. Wissner, 338
U.S. 655 (1950) (anti-attachment provision prohibited State

court from assigning life insurance proceeds to nonbeneficiary

widow).   See also Mahoney v. Mahoney, 425 Mass. 441, 443-445

(1997) (Social Security benefits may not be divided upon

divorce).

    Although there is a considerable body of law in this area,

the Supreme Court has never specifically addressed whether

Federal law preempts State courts from dividing veterans'

disability benefits as part of a marital estate.    Under the

cases, the basic preemption analysis is well settled.    "The
                                                                  8

whole subject of the domestic relations of husband and wife,

parent and child, belongs to the laws of the States and not to

the laws of the United States."     In re Burrus, 136 U.S. 586,

593-594 (1890).   Accordingly, "'[o]n the rare occasion when

state family law has come into conflict with a federal statute,

[the United States Supreme Court] has limited review under the

Supremacy Clause to a determination whether Congress has

"positively required by direct enactment" that state law be pre-

empted.'. . .   Before a state law governing domestic relations

will be overridden, it 'must do "major damage" to "clear and

substantial" federal interests.'"    Rose, 481 U.S. at 625,

quoting Hisquierdo, 439 U.S. at 581.     As the Supreme Court

pointed out in Hisquierdo, however, despite the high bar for

preemption the Court has several times concluded that State

domestic relations laws are preempted in the context presented

here -- where States have applied their domestic relations laws

to order Federal benefits redistributed to former spouses upon

divorce.

    And indeed, we find Hisquierdo controlling on the

preemption issue here.   As noted, the question in Hisquierdo was

whether retirement benefits payable to a railroad worker under

the Railroad Retirement Act could be divided by California as

community property upon divorce.    The Supreme Court held that

such a division was preempted, relying primarily upon the
                                                                    9

Railroad Retirement Act's anti-attachment statute, which

contained language very similar to the language of § 5301.      That

anti-attachment provision stated:     "notwithstanding any . . .

law . . . of any State, . . . no [railroad retirement] 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."   45 U.S.C. § 231m(a) (2012).    The Hisquierdo Court

ruled that this language expressed a strong Federal policy that

State laws not operate to "diminish" "the benefit Congress has

said should go to the retired worker alone." 439 U.S. at 590.

Moreover, in so ruling the Court squarely rejected an argument

that the language of the anti-attachment statute should be read

more narrowly, as merely a restatement of "the Government's

sovereign immunity from burdensome garnishment suits":

         "We, however, cannot so lightly discard the settled
    view that anti-assignment statutes have substantive
    meaning. Section 231m goes far beyond garnishment. It
    states that the annuity shall not be subject to any 'legal
    process under any circumstances whatsoever, nor shall the
    payment thereof be anticipated.' Its terms makes no
    exception for a spouse."

Id. at 586.

    Notably, the Hisquierdo Court took pains to distinguish a

former spouse's claim for marital property, from a former

spouse's claim for ongoing support. 439 U.S. at 586-587.   In

1975, just a few years before Hisquierdo was decided, Congress
                                                                 10

had enacted legislation that provided a limited override of some

anti-attachment statutes, so as to permit certain Federal

benefits to be used to satisfy child support and alimony

obligations.   The Hisquierdo Court noted that the legislation

preserving child support and alimony claims did not also

preserve community property claims:    "It is therefore logical to

conclude that Congress, in adopting § 462(c), thought that a

family's need for support could justify garnishment . . . , but

that community property claims, which are not based on need,

could not do so."     Id. at 587.5

    Hisquierdo was followed and extended in McCarty, 453 U.S.
232-235, where the Court held that a wife's claim to her

husband's military retirement benefits in a State divorce action

was also preempted.     McCarty did not even involve an anti-

attachment statute, yet the Court still concluded that State

community property laws conflicted with, and were preempted by,

    5  The 1975 legislation did not provide for veterans'
disability benefits to be accessed for support purposes.
Accordingly, that issue was left for later resolution, and it
reached the Supreme Court in Rose, discussed infra. The
distinction in the 1975 legislation between State laws governing
support obligations and those governing the division of marital
property, however, supports our analysis herein.
                                                                   11

an overriding Federal interest that military retirement pay go

to the military veteran.6

     Applying the above case law to our case, we conclude that

Federal law preempts Massachusetts courts from treating

veteran's disability payments as marital property subject to

equitable distribution.     The Federal anti-attachment statute

prohibits "attachment, levy, or seizure" by "any legal or

equitable process whatsoever."    38 U.S.C. § 5301(a)(1).    An

order requiring the division of veterans' benefits is certainly

"legal or equitable process."    We suppose it would be possible

to read the words "attachment, levy, or seizure" narrowly, such

that the statute merely prohibits court orders directed at the

property itself (in rem), and does not prohibit orders, such as

the order at issue, that operate on the person holding the

property (in personam).     As discussed above, however, the

Hisquierdo Court rejected such a narrow construction. 439 U.S.

at 586.   Nor do we think such a narrow construction would be

consistent with the statute's evident purpose.

     The wife relies upon the Supreme Court's decision in Rose,

where the Court concluded that the anti-attachment provision

"does not extend to protect a veteran's disability benefits from

     6 At times, Congress has stepped in directly. Thus,
Congress acted to dictate a different result than in McCarty, in
1982. See 10 U.S.C § 1408 (2017).
                                                                    12

seizure where the veteran invokes that provision to avoid an

otherwise valid order of child support."     Rose, 481 U.S. at 634.

But while the Rose Court did reason that VA disability "benefits

are intended to support not only the veteran, but the veteran's

family as well," the holding in Rose was confined to State court

child support enforcement proceedings, and did not involve

property division.   Id.   And as discussed above, the case law,

including Hisquierdo and Wissner, has historically distinguished

between State property division laws and State support laws,

holding that preemption applied to the former but not

necessarily to the latter.    See, e.g., Hisquierdo, 439 U.S. at

586-587; Wissner, 338 U.S. at 659-660.     We cannot read Rose as

overriding Hisquierdo and other cases holding that anti-

attachment provisions preempt State marital property division

laws.

    Our conclusion that § 5301 preempts State marital property

division laws is further supported by those sections of title 38

that allocate additional compensation for the support of a

disabled veteran's spouse, but expressly provide that the

additional compensation is an entitlement of the veteran, rather

than the veteran's spouse.   See 38 U.S.C. § 1115 (2012) ("Any

veteran entitled to compensation . . . whose disability is rated

not less than 30 percent, shall be entitled to additional

compensation for dependents"); 38 U.S.C. § 1135 (2012) (same).
                                                                  13

Moreover, as was the case in Hisquierdo,7 the spousal benefit

terminates upon divorce.   See 38 U.S.C. § 5112(b)(2) (2012).

These sections indicate that the additional compensation to the

veteran for the veteran's dependents is an entitlement of the

veteran, not the veteran's spouse.   Sharp, 403 F.3d at 1326.

     Our conclusion also is in accord with the vast majority of

State courts that have addressed the issue, both before and

after the decision in Rose.   See, e.g., Marriage of Wojcik, 362
Ill. App. 3d 144, 159 (2005) (§ 5301 reflects Congress's intent

to exempt VA disability benefits from any legal process, thus

"VA benefits may not be divided directly or used as a basis for

an offset during state [divorce] proceedings"); Marriage of

Howell, 434 N.W.2d 629, 633 (Iowa 1989) (VA disability benefits

"are statutorily exempt from all claims other than claims of the

United States, and are not divisible or assignable" in divorce

actions); Marriage of Strong, 300 Mont. 331, 339 (2000); Pfeil

v. Pfeil, 115 Wis. 2d 502, 505-506 (1983).8

     7 While in the Railroad Retirement Act Congress "provid[ed]
a benefit for a spouse," Congress "purposefully abandoned" the
spousal benefit "in allocating benefits upon absolute divorce."
Hisquierdo, 439 U.S. at 584. The Hisquierdo Court explained:
"In direct language the spouse is cut off: 'The entitlement of
a spouse of an individual to an annuity . . . shall end on the
last day of the month preceding the month in which . . . the
spouse and the individual are absolutely divorced.'" Id. at
584-585, quoting 45 U.S.C. § 231d(c)(3).

     8 At least one State court has ruled that there is no
Federal law precluding the division of veterans' disability
                                                                     14

    There is one final issue that requires our attention, which

is whether the anti-attachment provision protects veterans'

disability benefits, such as those at issue, that were received

prior to the divorce.    The wife argues that the disability

benefits paid to the husband during the marriage (as

distinguished from future disability payments) were properly

included in the marital estate.   Section 5301(a)(1), however, by

its plain terms applies to "[p]ayments of benefits . . . made,"

"either before or after receipt by the beneficiary" (emphasis

added), so it is clear that benefits do not lose their

protection from State court process solely because they had

already been paid out.   There is a practical issue, however, in

that disability payments received before divorce may lose their

separate character when they are comingled with the marital

assets.   The question here is whether the payments deposited

into the husband's personal bank account from July 2014 onward

are sufficiently separate that they are protected by the anti-

attachment law.

    The United States Supreme Court's decision in Porter v.

Aetna Cas. & Sur. Co., 370 U.S. 159 (1962), controls here.      In

Porter, the Court held that veterans' disability payments

deposited in a bank account remain exempt from attachment under

benefits upon divorce.   See Marriage of Landis, 200 Or. App.
107, 111-112 (2005).
                                                                  15

38 U.S.C. § 3101 (the statutory predecessor to § 5301),

"provided the benefit funds, regardless of the technicalities of

title and other formalities, are readily available as needed for

support and maintenance, actually retain the qualities of

moneys, and have not been converted into permanent investments."
370 U.S. at 162.   Here, the veteran's disability payments in

question were deposited in the husband's individual, interest-

bearing bank account, remained "readily available" to him,

"retain[ed] the qualities of moneys," and were not "converted

into permanent investments."   Id.   See Younger v. Mitchell, 245
Kan. 204, 211 (1989) (VA disability benefits deposited in bank

account remained exempt from attachment under § 3101, and "fact

that interest was credited to the . . . account [did] not

destroy the statutory exemption").   Cf. Bischoff v. Bischoff,

987 S.W.2d 798 (Ky. Ct. App. 1999) (husband's VA disability

benefits lost exempt status under § 5301[a] once they were

invested in real property); Goodemote v. Goodemote, 44 A.3d 74,

78 (Pa. Super. Ct. 2012) (VA disability payments lost exempt

status under § 5301 once "converted . . . into permanent

investments").   We therefore hold that the VA disability funds

in the husband's personal MCU account were exempt from division

by virtue of § 5301(a)(1), and it was error to include them in

the marital estate for purposes of equitable distribution.

Accordingly, the portions of the amended divorce judgment
                                                                     16

pertaining to property division must be vacated, and the case

must be remanded for a redistribution of the marital estate

pursuant to G. L. c. 208, § 34.

     We touch upon some issues that may arise on remand.

Because § 5301(a)(1) preempts the judge's authority to assign

the veterans' disability funds in question, those funds must be

excluded from the redistribution of the marital estate.       That

said, however, we do not read § 5301 to prohibit the judge from

considering the husband's receipt of VA disability benefits as a

relevant factor when determining how to divide the marital

estate.     Rather, the judge may equitably divide the redefined

estate in light of all the factors enumerated in G. L. c. 208,

§ 34.   Cf. Mahoney, 425 Mass. at 446 (although anti-assignment

statute bars equitable distribution of Social Security benefits,

"a judge may consider a spouse's anticipated Social Security

benefits as one factor, among others, in making an equitable

distribution of the distributable marital assets").     The

language of § 5301 reflects Congress's intent to preempt a State

court judge's authority to assign or divide VA disability

benefits.    The statute should not be read, however, to preclude

a judge from "acknowledging the existence" of those benefits

when determining an equitable distribution of the parties' other
                                                                     17

assets.   Wojcik, 362 Ill. App. 3d at 161.9     Such a conclusion

would run counter to the preemption standards in the case law,

which require a conflict with "the express terms of federal

law."    Hisquierdo, 437 U.S. at 583.

     Conclusion.     So much of the amended divorce judgment dated

September 24, 2018, as pertains to property division is vacated,

and the matter is remanded for further proceedings consistent

with this opinion.

                                        So ordered.

     9 Although the judge may consider the receipt of the benefit
as a factor in the § 34 assessment, the judge may not
mechanically offset the distributions dollar for dollar to
account for the veterans' disability award. Such would
constitute an improper end run around the anti-attachment
statute. Cf. Hisquierdo, 490 U.S. at 588 (court may not offset
future railroad retirement benefits).