Vol. 53 — The Actual Legal Analysis as to 38 USC 5301 and Alimony
A legal note from Marshal Willick about the actual legal analysis of the federal code section (and other statutes) at the root of the efforts to corrupt family law by the militant fringe groups, and how military disability benefits are analyzed in child and spousal support cases.
Several attorneys wrote in, after seeing the prior legal notes relating to questions of federal preemption, legislation elsewhere, and the small band of militants trying to misuse the law for their own personal economic advantage, asking what the underlying legal merits of the dispute actually might be. This note addresses the federal law involved as it impacts support cases.
I. BACKGROUND: RETIRED PAY, DISABILITY PAY, AND THE CONCEPT OF FEDERAL PREEMPTION
Retirement benefits are essentially a form of deferred reward for service, and so are generally divisible upon divorce, while disability benefits are conceptualized as compensation for future lost wages and opportunities because of disabilities suffered, and are thus typically not divisible or attachable. When accepting a disability award requires relinquishing a retirement benefit, the interests of the parties as to the proper characterization of the benefits become instantly polarized.
The fact pattern of one party relinquishing (divisible) retirement benefits in order to receive (non-divisible) disability benefits plays out two ways in divorce litigation. First, the question of indemnification – whether the converting party must reimburse the other party, if that other party had been previously awarded a share of the benefits that the converting party has chosen to give up and convert to some other form. Second, the role of disability benefits as part of the economic resources to be considered when setting child and spousal support.
A great deal has been (and can be) said about indemnification. See, e.g., Willick, Divorcing the Military: How to Attack, How to Defend, posted at https://www.willicklawgroup.com/military-retirement-benefits/. This note, however, is concerned with the intersection of military disability claims and support obligations; the question of property indemnification will wait until another day.
In our federal system, virtually all of family law is left to the States, not the federal government. As the United States Supreme Court put it: “We have consistently recognized that ‘the 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.’” Rose v. Rose, 481 U.S. 619, 625, 107 S. Ct. 2029, 95 L. Ed.2d 599 (1987).
Sometimes, Congress wishes to “occupy the field” in a particular question of law, and generally, it has the power to do so, even when it results in unintended consequences of unjust enrichment and inequity. See Carmona v. Carmona, 603 F.3d 1041 (9th Cir. 2010) (revised op’n on rehearing) (permitting a former spouse who had bargained away certain benefits for value to nevertheless make a claim to them despite her agreement, the order of the divorce court, and the wishes of the employee, due to the happenstance of the timing of divorce and retirement, and the preemptive scope of ERISA).
Preemption is explained, again by the United States Supreme Court, as necessary for a federal system, but to be very strictly limited because of the obvious opportunity for abuse and inequity: “On the rare occasion when state family law has come into conflict with a federal statute, this 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.’”
II. THE DISTINCTION BETWEEN PROPERTY DIVISION AND SUPPORT
Community property is defined as “All property . . . acquired after marriage by either husband or wife, or both,” subject to a few exceptions. NRS 123.220. Upon divorce, courts are directed “to the extent practicable, make an equal disposition of the community property of the parties,” again with a few exceptions. NRS 125.150(1).
Child and spousal support is determined through a completely different analysis. Child support is based on a percentage of “gross income,” the definition of which is deliberately expansive, including “the total amount of income received each month from any source . . . .” NRS 125B.070.
A court determining spousal support is directed to award whatever “sum . . . appears just and equitable.” In figuring out what is “just and equitable,” courts are directed to consider “the financial condition of each spouse.” Courts are further authorized, if they find it appropriate, to “set apart such portion of the . . . separate property” of either spouse that is “deemed just and equitable” to support the other party, or the parties’ children. NRS 125.150.
Obviously, support draws from a much wider net than community property, since it considers the totality of economic resources of both parties, and is directed to achieve equity rather than (as with property division) a presumptively equal division of that which accrued during the marriage.
III. DISABILITY INCOME IS INCOME
Most States, including Nevada, treat disability income as the separate property income stream of the employee spouse, which may not be divided as property with the non-employee spouse. See, e.g., Powers v. Powers, 105 Nev. 514, 779 P.2d 91 (1989) (disability retirement has two components, retirement and disability, and only the retirement component is divisible upon divorce). However, nothing requires a court in most cases to ignore reality or engage in the fantasy that the income stream does not exist when balancing the support rights and obligations of two parties.
In extremely rare circumstances, some forms of benefits have been expressly exempted from being counted as “income,” due to competing policy directives. For example, the Nevada Supreme Court started its analysis in Metz v. Metz, 120 Nev. 786, 101 P.3d 779 (2004), with the irrefutable observation that all income of a child support obligor is contemplated within the scope of “gross income,” and that NRS 125B.020 states that parents have a duty to support their children.
Nevertheless, the Court found that a federal statute may preempt a state statute when they squarely conflict, and found that SSI is a welfare program designed to assure that the recipient’s income is maintained at a level viewed by Congress as the minimum necessary for subsistence, whereas SSD is a disability insurance program that provides benefits for disabled workers, intended to replace lost income because of the disability. After discussion of how and why the statutory schemes differ, the Court found that while both SSI and SSD qualify as a source of a parent’s gross monthly income under NRS 125B.070, the federal exemption for SSI benefits also preempted Nevada law, so the SSD funds, but not SSI, could be counted for figuring child support.
IV. 38 U.S.C. § 5301
The issue relates to former military members who have converted their retirement benefits into disability benefits. As discussed in legal note Vol. 47, “Military Retirement Militant Groups,” posted at https://www.willicklawgroup.com/full-list-of-newsletters/, some members of this group believe that they should be treated differently than firefighters, cops, or schoolteachers – they howl that when they recharacterize retirement benefits as disability benefits, divorce courts should be unable to see, acknowledge, or take into account the income stream they receive when figuring out how to apportion rights and responsibilities between the parties, but must instead pretend that they are not receiving the money that they are putting in their pockets every month. They are wrong.
The myopic focus of the “5301 club” is 38 U.S.C. § 5301(a):
(a) 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. The preceding sentence shall not apply to claims of the United States arising under such laws nor shall the exemption therein contained as to taxation extend to any property purchased in part or wholly out of such payments.
The key part to this provision is on the second line, “except to the extent specifically authorized by law.” Congress clearly intended Title 38 V.A. benefits to be considered as a source of income for support purposes – as all of the courts discussed in the next section have held. That is why the statutes include graduated benefit schedules based on how many dependents a veteran has. Additionally, 38 U.S.C. § 5307 is a statutory apportionment procedure used when a veteran is not discharging his or her responsibility for support. See also 42 U.S.C. § 659 (governing garnishment of V.A. benefits for child support or alimony where military retired pay was waived to obtain those payments).
V. THE ACTUAL CASE LAW ON THE SUBJECT
Probably the single most important case is Rose v. Rose, 481 U.S. 619, 625, 107 S. Ct. 2029, 95 L. Ed.2d 599 (1987). In Rose, the U.S. Supreme Court reviewed a contempt judgment against a veteran whose sole source of income was his V.A. disability compensation. He had refused to pay the child support ordered, claiming that he was constitutionally allowed to keep all V.A. benefits for himself. In a thorough review of the relevant statutes and rules, the Court held that “these benefits are not provided to support [the veteran] alone.” Explaining, the Court stated:
Veterans’ disability benefits compensate for impaired earning capacity, H.R. Rep. No. 96-1155, p.4 (1980), and are intended to “provide reasonable and adequate compensation for disabled veterans and their families.” S. Rep. No. 98-604, p.24 (1984) (emphasis added). Additional compensation for dependents of disabled veterans is available under 38 U.S.C. § 315, and in this case totaled $90 per month for appellant’s two children. But the paucity of the benefits available under § 315 [now 38 U.S.C. § 1115] belies any contention that Congress intended these amounts alone to provide for the support of the children of disabled veterans. Moreover, as evidenced by § 3107(a)(2) [now 38 U.S.C. § 5307] . . . Congress clearly intended veterans’ disability benefits to be used, in part, for the support of veterans’ dependents.
The Court added that “children may rightfully expect to derive support from a portion of their veteran parent’s disability benefits.” There can be no doubt that family support is one of the purposes for the V.A. payments given to a veteran. Of course, members of the 5301 club attempt to ignore this holding out of existence, since it is incompatible with their world-view.
Generally, State courts make alimony awards where necessary to do substantial justice to the parties in front of them, taking into account the entirety of the actual financial circumstances of those parties. Many courts have awarded alimony upon divorce to one spouse on the basis that the other spouse has a separate property stream of income.
Some courts have noted that such an order is particularly appropriate in the military cases in which the member was enjoying a separate property cash flow from disability benefits applied for before divorce that would have been divisible retirement benefits but for the member’s election. Where V.A. disability exists at the time of divorce, the court cannot divide those benefits as property, but the cash flow “may be considered as a resource for purposes of determining [one’s] ability to pay alimony.” See Riley v. Riley, 571 A.2d 1261 (Md. Ct. Spec. App. 1990); In re Marriage of Howell, 434 N.W.2d 629, 633 (Iowa 1989).
There are former military members who continue trying to argue that an alimony order effects an “attachment, levy, or seizure” of veterans’ disability benefits under 38 U.S.C. § 5301(a)(1), but that argument is contrary to virtually all law on the subject. See, e.g., Case v. Dubaj, ___ F. Supp. ___ (W.D. Pa. No. 08-347, Aug. 29, 2011) (no 42 U.S.C. § 1983 violation could be asserted against county support enforcement workers who seized or froze a bank account consisting entirely of veterans’ disability benefits, because 38 U.S.C. § 5301 does not apply to claims for spousal and child support); Annotation, Enforcement of Claim for Alimony or Support, or for Attorneys’ Fees and Costs Incurred in Connection Therewith, Against Exemptions, 52 A.L.R. 5th 221 §28[a] (“With few exceptions, the cases hold that payments arising from service in the Armed Forces . . ., though exempt as to the claims of ordinary creditors, are not exempt from a claim for alimony, support, or maintenance . . .”); Commonwealth ex. rel. Caler v. Caler, 1981 WL 207422 (Pa. Com. Pl. 1981) (exemption statutes such as § 5301(a) “are generally held to apply only to claims arising from the debtor-creditor relation and have no application to claims for family support absent clear statutory language to the contrary”); In re Marriage of Dora Pope-Clifton, 823 N.E.2d 607 (Ill. App. 2005) (veteran’s bank account could be frozen to satisfy his support obligations despite the fact that the proceeds in the account consisted of veterans’ disability funds because “veterans’ benefits are not for the sole benefit of disabled veterans,” but rather, “[are] intended to benefit both veterans and their families”).
The South Dakota Supreme Court, summarizing the national decisional law in 2011, noted that “An overwhelming majority of courts have held that [federal veterans’] disability payments may be considered as income in awarding spousal support.” Urbaniak v. Urbaniak, 807 N.W.2d 621, 626 (S.D. 2011) (quotation omitted).
As noted by the collected opinions, that conclusion should be undeniable as a statement of current law on the subject. “These courts conclude that federal law does not prohibit an award of alimony against a spouse receiving military disability pay and, once alimony is awarded, federal law will not relieve the paying spouse from paying such alimony obligations, even if most of the veteran’s income consists of military disability benefits.” Urbaniak, supra; see In re Marriage of Wojcik, 838 N.E.2d 282, 299 (Ill. Ct. App. 2005); Morales and Morales, 214 P.3d 81, 85 (Or. Ct. App. 2009); Youngbluth v. Youngbluth, 6 A.3d 677, 687 n.3 (Vt. 2010).
The courts so holding have relied upon the United States Supreme Court’s holding in Rose, supra. The Montana Supreme Court, reviewing Rose in a similar case in 2000, observed: “After reviewing the legislative history” of the provision, “the Court held that [veterans’] disability benefits were never intended to be exclusively for the subsistence of the beneficiary.” Strong v. Strong, 8 P.3d 763, 770 (Mont. 2000); see Rose, 481 U.S. at 634. Rather, they were intended to support “the veteran’s family as well.”
Accordingly, the courts reviewing this subject have held, with near unanimity, that to recognize an exception to the statute’s prohibition against attachment, levy, or seizure in the child support context “would further, not undermine, the federal purpose in providing these benefits.” In Rose, the United States Supreme Court concluded that “regardless of the merit of the distinction between the moral imperative of family support obligations and the businesslike justifications for community property division, . . . [the statute] does not extend to protect a veteran’s disability benefits from seizure where the veteran invokes that provision to avoid an otherwise valid order of child support.”
Other courts have used “the logic of Rose” to hold that “a state court is clearly free to consider post-dissolution disability income and order a disabled veteran to pay spousal support even where disability benefits will necessarily be used to make such payments.” Strong v. Strong, 8 P.3d 763, 770 (Mont. 2000).
In the absence of further federal legislation or a changed opinion from the United States Supreme Court, those arguing that courts may not consider disability or any other form of benefits in fashioning child support and spousal support orders are arguing out of wishful thinking, without any kind of legitimate legal basis.
These limitations on the extent of the exemption from execution are analogous to limitations on “assignability” found in other federal retirement and benefit schemes that protect income streams from attachment. For example, the Social Security Act, 42 U.S.C. § 407, contains limiting language comparable to that found in 38 U.S.C. § 5301, and sub-section (a) of that section states:
The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.
Most States, including Nevada, consider Social Security exempt from direct or indirect inclusion in property settlements. See Wolff v. Wolff, 112 Nev. 1355, 929 P.2d 916 (1996); Boulter v. Boulter, 113 Nev. 74, 930 P.2d 112 (1997). But they do figure in the income available to the party receiving them, and courts can, do, and should consider those payments in figuring the total economic resources of such parties. See Metz, supra; Hern v. Erhardt, 113 Nev. 1330, 948 P.2d 1195 (1997) (considering Social Security disability benefits applied to offset child support arrearages).
The bottom line to the case law is a reminder that any given statutory provision exists in the context of other provisions, and of decades (or longer) of interpretation, rather than in a vacuum. Those myopic partisans determined to read 38 U.S.C. § 5301 – or any other provision of statutory or case law – alone and outside its full legal context, are in error, and misinterpreting the law, as so succinctly summarized in Paul Simon’s pithy quote below.
VI. CASE STUDY: BROWNELL
Some months ago, the New Hampshire Supreme Court decided In the Matter of Ronald Brownell and Irene Brownell, 44 A.3d 534, 163 N.H. 593 (2012). It is the latest example of a military veteran, having been advised to ignore court orders by the militant veteran fringe groups, landing in deep trouble.
A. THE CASE ITSELF
After a 13 year marriage, Ronald and Irene separated in 2010, and were divorced in 2011. Ronald was totally and permanently disabled, and received $962 in monthly social security benefits and some $2,578 in monthly V.A. disability benefits, which was awarded based on post-traumatic stress disorder from serving in Vietnam. Irene also suffered from post-traumatic stress disorder, as well as other ailments, but had no income or assets beyond some $200 in monthly food stamps.
Ronald also inherited trust income, which paid him $79,000. The trial court issued an “anti-hypothecation order,” but Ronald spent all $79,000 by the time of the divorce hearing anyway. The appellate court’s recitation indicates that he used more than $30,000 of it to buy illegal narcotics, and spent the rest buying a truck and a trailer for himself, gave his children $9,000, and paid $6,000 for his daughter’s wedding. Apparently, another $15,000 was to be received in the future.
The whole time he was spending that money, Ronald was ignoring the trial court’s temporary spousal support order of $1,250 per month. Irene, unable to pay the mortgage on the marital home, lost it to foreclosure by the time of the divorce trial, and was homeless and living in a shelter.
The trial court specifically found that Ronald had “no credibility,” as he lied when he said at one hearing that he had received only $25,000 from the trust (having in fact received $41,000), lied again a month later when his interrogatory responses said that he had only received $31,500 from the trust, when, in fact, he had received $51,000, and lied yet again on his financial affidavit, which claimed that he had “no cash,” although in fact in that month alone he received $10,500 in cash from the trust, which he then spent on illegal drugs.
The divorce decree ordered Ronald to pay Irene half of his trust distributions, which the court calculated to be $47,000, and found Ronald in indirect civil contempt for not paying alimony as ordered and by hypothecating marital property. Ronald appealed.
His primary argument was that “federal law” precluded the trial court from “counting” his V.A. benefits as income for alimony purposes, because 38 U.S.C. § 5301(a)(1) provides that federal veterans’ disability benefits “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.” By Ronald’s reasoning, since he had too little income from “alternative sources” to make the entirety of the alimony payments, the trial courts alimony order was an “attachment, levy, or seizure” of his V.A. benefits in violation of the federal statute.
Citing multiple cases from all over the country, the appellate court dryly observed that his assertion “is contrary to the governing law,” and quoted multiple authorities stating that “An overwhelming majority of courts have held that [V.A.] disability payments may be considered as income in awarding spousal support.” Like most of those courts, the New Hampshire court relied on Rose.
The Court also resisted the typical second bogeyman argument in such cases, stemming from Mansell v. Mansell, 490 U.S. 581, 594-95, 109 S. Ct. 2023, 104 L. Ed.2d 675 (1989), holding like virtually all other courts that the “federal question in Mansell was a narrow one” relating solely to a State court’s ability to treat military retirement pay that a retiree has waived in order to receive veterans’ disability benefits as property that can be divided on the dissolution of a marriage.” Finding that Ronald sought to conflate that property question with the very different question of a divorce court’s considering all income sources in determining alimony, the court rejected Ronald’s argument as spurious.
The court then dealt with a few other non-military issues, and affirmed the trial court order.
B. WHY WOULD SOMEBODY DO SUCH THINGS?
Background facts not found in the opinion illustrate why Ronald Brownell was willing to risk contempt sanctions and jail time. In an e-mail string proudly circulated by one of the 5301 club military fringe group leaders, Ronald’s daughter conceded that it was garden-variety spite, which Ronald tried to dress up with pretense to federal preemption: “I know he would rather die than pay her a cent . . . he has said over and over he will never pay her.”
Of course, every divorce lawyer is familiar with that kind of ignorant obstinance; the question is why this litigant felt that he could have some possibility of convincing the court system that it was powerless to try to protect the equally-disabled and utterly destitute spouse. The answer is the prattling poison of the fringe groups. The daughter noted that Ronald had been encouraged to act as he did by that group, but ironically appeared to not understand that they had led him to ruin:
I just don’t know what to do here and I am worried and the 5301 group is the only outlet available to reach out to for support so please, anything you have to say will be greatly appreciated, because when I spoke with you both on the phone you had a lot of great advise [sic] for me in the beginning of all of this.
In response to the e-mail from the daughter, one of the self-appointed leaders of that group conveyed his sympathies, adding the Kafka-esque summary of the facts of the case: “the way this nation treats its wounded soldiers is a national disgrace.”
Totally disregarding the equities of the situation, the needs of both parties for subsistence, Ronald’s defiance of court orders in favor of blowing tens of thousands of dollars on drugs, or anything else outside of the myopic self-absorption of whether one of the litigants was ever in the military, the group leader added more delusion:
Attorneys such as the one representing your father’s former spouse have learned to exploit loopholes that exist in the law – namely a process called “indemnification” and, as I suspect in your father’s case alimony to circumvent federal laws which protect veterans from having their disability compensation stripped away. . . . state legislatures are infested with these attorneys. . . . miscreants that have worked tirelessly to create a legal environment in which wounded veterans are sitting ducks and lambs to the slaughter . . . . It is high time attention be brought upon this holocaust that’s occurring . . . what has happened to your father is a national disgrace.
In short, these groups are of the opinion that if a divorcing couple includes one party receiving thousands of dollars each month in V.A. benefits, and the other is utterly destitute, he should keep the entire income stream, and she should starve and be homeless, and it is a “disgrace” if a court thinks otherwise and does something to prevent such an inequity.
After deluding saps such as Ronald with their snake oil, leaving the individuals in contempt, the groups in question hold them up as martyrs for their cause. This is not an isolated matter; one of their websites (veteransnewsnow.com) reports several more of their acolytes reporting to jail for contempt sanctions for outright refusal to pay child and spousal support, in Iowa, Minnesota, and Texas. In a case like Brownell, they want the court to be prohibited from ever knowing that the disabled member has thousands of dollars in monthly income, and wants courts to be prevented from doing equity between spouses if one of them ever wore a uniform.
VII. LEGAL EVOLUTION AND SOCIAL CONTEXT
Recently, another of the fringe group members receiving V.A. benefits and angry about having been ordered to pay alimony in accordance with State law attempted to have the orders against him reviewed by the United States Supreme Court, but the Court elected not to hear the case. See Barclay v. Barclay, ___ P.3d ___ (Or. Ct. App. No. A143881, Sept. 28, 2011), cert. den., ___ U.S. ___, No. 11-1453, Sept. 28, 2012.
Where this leaves matters is with the “overwhelming majority” of opinions around the United States noted above stating that – of course – in the absence of explicit federal legislation requiring otherwise, all separate property monthly income streams being paid to either party to a marriage may be taken into account as part of their financial resources when determining a balancing of financial interests between them for an alimony or child support decision.
The fringe groups in question see no reason to obey judicial or other authorities who disagree with them, but the noise they generate is entirely disproportional to the (mostly non-existent) legitimacy of their legal position. Those wanting a further discussion of who they are and how they operate can review legal notes Nos. 46, 47, and 49, all posted at https://www.willicklawgroup.com/full-list-of-newsletters/.
VIII. QUOTES OF THE ISSUE
“The correct rule on the necessity of expert testimony has been summarized by Bob Dylan: ‘You don’t need a weatherman to know which way the wind blows.’”
– Jorgensen v. Beach ‘n’ Bay Realty, Inc., 177 Cal. Rptr. 882, 125 Cal. App. 3d 155 (Ct. App. 1981), quoting from Subterranean Homesick Blues, from “Bringing It All Back Home.”
“A man hears what he wants to hear, and disregards the rest.”
– Paul Simon, The Boxer, from “Bridge Over Troubled Water,” 1970 (“Simon’s Second Law,” coined by experienced practitioners in divorce law who run into such misguided thinking all the time).
“Too often we . . . enjoy the comfort of opinion without the discomfort of thought.”
– John F. Kennedy.
For more on the law governing military retirement benefits, go to https://www.willicklawgroup.com/military-retirement-benefits/. For the archives of previous legal notes, go to https://www.willicklawgroup.com/newsletters.
If there are any problems with or suggestions for these newsletters, please feel free to email back to me. Thanks.