In re Marriage of Babin , 56 Kan. App. 2d 709 ( 2019 )

No. 119,099
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
In the Matter of the Marriage of
ROSLYN MARIE BABIN,
Appellee,
and
NICKEY NICKLES BABIN,
Appellant.
SYLLABUS BY THE COURT
1.
Under the Uniformed Services Former Spouses' Protection Act, 10 U.S.C. § 1408(2016), state courts may treat disposable military retirement pay as marital property in
domestic actions. However, federal law preempts such courts from ordering the division
of military disability benefits and the distribution of any portion of those benefits to a
veteran's former spouse.
2.
If any portion of a veteran's military retirement pay is reclassified as disability
benefits by the Veteran's Administration, under the preemption doctrine any such
reclassified portion is the veteran's exclusively and is no longer subject to a state court
order of distribution to such veteran's former spouse. This is true even if the parties have
agreed differently and the court has adopted such agreement. The parties cannot rely on
the sanctity of contract to escape federal preemption.
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3.
Although the district court cannot order the division of military disability benefits,
it is permissible for the court to consider the financial effect of disability pay when
dividing assets and ordering spousal support.
Appeal from Dickinson District Court; BENJAMIN J. SEXTON, judge. Opinion filed February 1,
2019. Reversed and remanded with directions.
Todd A. Luckman, of Stumbo Hanson, L.L.P., of Topeka, for appellant.
Peter Charles Rombold, of Hoover, Schermerhorn, Edwards, Pinaire & Rombold, of Junction
City, for appellee.
Before SCHROEDER, P.J., STANDRIDGE, J., and WALKER, S.J.
WALKER, J.: Nickey Nickles Babin and Roslyn Marie Babin originally reached a
mediated property settlement agreement in their divorce, but issues arose between the
parties after mediation was complete. The district court granted the parties' divorce, but
litigation continued regarding the division of property and spousal maintenance. Even
though Nickey had agreed to give 43% of his military disability benefits to Roslyn as part
of the settlement agreement, he later argued that federal preemption prohibited the district
court from dividing military disability benefits in a divorce. The district court ruled that
the mediation agreement was plain and unambiguous and adopted the mediation
agreement as its order. Nickey appeals from the district court's order approving a division
of his military disability benefits. We concur with Nickey that the district court lacked
jurisdiction to divide his military disability pay because of federal preemption, even
though a property settlement agreement allowing for the division of disability pay had
been reached through mediation. We thus reverse the district court's orders approving the
settlement and remand the case for further proceedings.
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FACTS
Nickey and Roslyn were married in March 1994. During all but the last few
months of the marriage, Nickey was an active duty member of the United States Army.
He retired on August 1, 2016.
Roslyn filed a petition for separate maintenance on September 1, 2016. In
response, Nicky filed an answer and a counter-petition for divorce. Ultimately the parties
agreed to treat the matter as a divorce action.
The parties entered into mediation in November 2016. At the end of mediation, the
parties signed a handwritten document dated November 29, 2016, memorializing the
primary terms of a property settlement agreement. In pertinent part, the document
provided: "4. Military retirement, disability and any back pay divided 43% to Wife and
57% to Husband. Start 12-1-16."
The district court granted Nickey and Roslyn a decree of divorce on December 22,
2016, but the division of property was continued for a later time for two reasons: (1)
Nickey was proposing an alternative to the settlement agreement's provisions for life
insurance and (2) Nickey claimed that Roslyn's purchase of a new vehicle was either
contrary to the agreement, or the parties did not have a "meeting of the minds" when they
provided for Roslyn's postdivorce transportation in the agreement.
Nickey filed his proposed formal findings for the district court on February 2,
2017. At a hearing on the proposed findings held on February 6, 2017, Nickey came
forward with another objection to the agreement. In this new argument, Nickey claimed
that he did not agree to allocate 43% of his disability pay to Roslyn. In his proposed
formal settlement agreement, the language indicated Roslyn was to be awarded a 43%
share of his "disposable military retired pay" without reference to disability payments.
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This was calculated to be $1,237.52 based on a net disposable retirement pay of
$2,877.95. Even though it was not detailed in the mediation document, Nickey proposed
that any later reduction in disposable military retired pay by a Veterans Administration
(VA) disability waiver be made up to Roslyn by paying her an increase in maintenance to
offset the actual amount of her loss incurred as a result of a VA waiver.
The district court reserved the issue regarding Nickey's military disability pay
based on his claim that he did not agree to the division of his disability pay. The court
indicated that it did not have the ability to divide Nickey's military disability pay without
his consent. The issue of the division of the disability pay and/or how it would affect the
allocation of other assets including maintenance payments was to be separately briefed
and set for a hearing on February 28, 2017.
In her brief, Roslyn points out that Nickey had expressly agreed to allocate 43% of
his military disability benefits to her at mediation on November 29, 2016. Roslyn argued
that if Nickey was going to abrogate the agreement, the court should increase the
agreement's provision for $800 per month in spousal maintenance to a maintenance
payment in the range of $2,000 to $3,490 per month. In response, Nickey argued the
court had no jurisdiction over his disability pay and the court could not consider disability
pay when making an allocation of marital property. Nickey acknowledged, however, that
the court could consider disability pay when making an award for maintenance. Even so,
Nickey asked the court to decrease the agreement's provision for maintenance from $800
per month to a payment ranging from $626 to $688 per month, with a possible temporary
award of $900 per month for a period of six months.
On February 28, 2017, the district court held an evidentiary hearing. After
receiving the evidence and hearing arguments, the court ruled that the mediation
agreement was plain and unambiguous and it adopted the agreement as its order. The
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court specifically found that Nickey had voluntarily agreed to pay Roslyn 43% of his
military disability pay.
On March 14, 2017, Nickey objected to Roslyn's proposed journal entry
memorializing the February 28, 2017 hearing under Supreme Court Rule 170 (2019 Kan.
S. Ct. R. 222). Three days later, on March 17, 2017, Nickey also filed a motion for
reconsideration.
The journal entry of the district court's original decision was subsequently filed on
April 5, 2017. In its written decision, the district court ruled that Nickey had agreed that
Roslyn should receive 43% of his disability benefits in the mediation agreement, which
should be enforced. The court also ruled that Roslyn would receive spousal maintenance
in the amount of $800 per month as stated in the agreement. However, the district court
did not specifically address Nickey's March 17 motion for reconsideration of its ruling.
Subsequently, the district court did hold a hearing on the motion for
reconsideration on April 24, 2017. The court denied the motion and directed Roslyn's
counsel to draw the journal entry. This was not done by her counsel, resulting in a
troublesome gap in the record which was not cured until a journal entry was finally
settled nearly 10 months later, after Roslyn obtained new counsel.
The next substantive event in the case occurred over eight months later. On
December 29, 2017, Nickey filed a motion for relief from judgment based in part on the
United States Supreme Court's holding in Howell v. Howell, 581 U.S. ___, 137 S. Ct.
1400, 197 L. Ed. 2d 781 (2017). On February 12, 2018, the district court held a hearing at
which it denied Nickey's new motion for relief from judgment and settled the dispute
concerning the old journal entry of its denial of Nickey's March 17, 2017 motion for
reconsideration. The court once again reiterated its finding that the parties had contracted,
by way of mediation, to a division of Nickey's military disability pay. This was
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memorialized by a written order filed on February 21, 2018, which denied both Nickey's
motion for reconsideration and his motion for relief from judgment.
Nickey filed a timely notice of appeal from the district court's rulings.
ANALYSIS
Divisibility of military disability benefits
Nickey first argues that the district court erred by awarding 43% of his military
disability benefits to Roslyn. Nickey claims that under federal law his military disability
benefits are not divisible marital property subject to the jurisdiction of the Kansas courts
even in the event that the recipient spouse agreed to the division.
The primary issue is whether federal law preempts enforcement of the portion of
the parties' property division that divides Nickey's disability compensation. The matter of
division of military pay is an issue of federal preemption and jurisdiction. Whether
jurisdiction exists is a question of law over which our review is unlimited. Kansas
Medical Mut. Ins. Co. v. Svaty, 291 Kan. 597, 609, 244 P.3d 642 (2010). We also
exercise unlimited review over whether a federal statute preempts state law. Board of
Miami County Comm'rs v. Kanza Rail-Trails Conservancy, Inc., 292 Kan. 285, 294, 255
P.3d 1186 (2011).
Under 10 U.S.C. § 3911 et seq. (2016), "[m]embers of the Armed Forces who
serve for a specified period, generally at least 20 years, may retire with retired pay."
Mansell v. Mansell, 490 U.S. 581, 583, 109 S. Ct. 2023, 104 L. Ed. 2d 675 (1989). In
addition, federal law also provides that "[v]eterans who became disabled as a result of
military service are eligible for disability benefits[,]" which are calculated "according to
the seriousness of the disability and the degree to which the veteran's ability to earn a
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living has been impaired." 490 U.S. at 583. Federal law prevents a veteran from receiving
both retired pay and disability benefits. Thus, "[i]n order to prevent double dipping, a
military retiree may receive disability benefits only to the extent that he waives a
corresponding amount of his military retirement pay." 490 U.S. at 583. Accordingly, if
the percentage of a military veteran's disability increases and his or her corresponding
disability benefits increase, his or her retirement pay will go down in a corresponding
amount. Because military disability pay is exempt from federal, state, and local taxation,
it is common for retirees to waive their retirement pay in favor of disability pay. 490 U.S.
at 583-84.
Congress sought to protect veterans' benefits to ensure that they provide support
for veterans, with the goal of encouraging participation in the military. See McCarty v.
McCarty, 453 U.S. 210, 234, 101 S. Ct. 2728, 69 L. Ed. 2d 589 (1981) (discussing federal
interests in area of military retired pay). But Congress also protected spouses of veterans
by establishing provisions to make sure that they were compensated in divorce. See
Mansell, 490 U.S. at 587-89. The federal law governing these issues is known as the
Uniformed Services Former Spouses' Protection Act (Act), 10 U.S.C. § 1408 (2016).
Congress passed the Act after the United States Supreme Court held that the
federal laws then governing military retired pay preempted state courts from treating
military retired pay as community property. Mansell, 490 U.S. at 584 (recognizing that
the Act was a "direct response" to the holding in McCarty); McCarty, 453 U.S. at 232-35.
The Act changed the law and provided that state courts can treat disposable retirement
pay as marital property. Mansell, 490 U.S. at 583. But in Mansell, the Supreme Court
recognized that federal law preempts state courts from ordering the division of military
disability benefits and the distribution of these benefits to a veteran's former spouse. 490
U.S. at 594-95.
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The Act "presents one of those rare instances where Congress has directly and
specifically legislated in the area of domestic relations," an area of the law generally left
to the states. 490 U.S. at 587. The preemption doctrine is rooted in the Supremacy
Clause, which states that the laws of the United States "shall be the supreme Law of the
Land; and the Judges in every State shall be bound thereby." U.S. Const., art. VI, cl. 2.
Congressional intent is the ultimate touchstone when determining if state action is
preempted by federal law. Gade v. National Solid Wastes Management Ass'n., 505 U.S.
88, 96, 112 S. Ct. 2374, 120 L. Ed. 2d 73 (1992).
Seven years after the passage of the Act, the United States Supreme Court
interpreted the Act in a case involving a marriage dissolution decree that effectively
divided a veteran's disability compensation as part of a property settlement. Mansell, 490
U.S. at 585-87. In the property settlement agreement, the veteran spouse agreed to pay
50% of his total military retirement pay to his former spouse—including the portion that
had been waived—so that he could receive disability benefits. The veteran spouse sought
modification of the decree, arguing that the Act protected his receipt of disability
compensation, but the California courts concluded that the Act did not preempt state
community property law. The United States Supreme Court reversed, holding that the Act
preempted state law and concluding that the Act "does not grant state courts the power to
treat as property divisible upon divorce military retirement pay that has been waived to
receive veterans' disability benefits." 490 U.S. at 594-95. The Court noted that a state
court's authority under the Act "is both precise and limited." 490 U.S. at 588.
The Mansell Court noted the harsh result its ruling would have on some former
spouses of veterans:
"We realize that reading the statute literally may inflict economic harm on many
former spouses. But we decline to misread the statute in order to reach a sympathetic
result when such a reading requires us to do violence to the plain language of the statute
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and to ignore much of the legislative history. Congress chose the language that requires
us to decide as we do, and Congress is free to change it." 490 U.S. at 594.
The Act classifies military retirement pay as disposable retired or retainer pay, but
the statute does not include military disability benefits within the definition of disposable
retired or retainer pay. Thus military disability benefits cannot be classified as marital
property subject to division and are instead treated as the retiree's separate property. See
In re Marriage of Pierce, 26 Kan. App. 2d 236, 240, 982 P.2d 995 (1999) (state district
courts have no jurisdiction over military disability benefits).
In Pierce, the parties prepared a property settlement agreement that gave the
nonmilitary spouse a certain percentage of the military retirement benefit. But the
agreement did not specify that the spouse would obtain a certain amount of money per
month or that the military retirement pay could not be converted to disability pay. At a
later date, the military spouse had his retirement pay fully converted to disability benefits,
denying the other spouse any retirement benefits. The former spouse filed a motion which
would have modified or amended the original property settlement agreement, which was
denied by the district court. She then appealed to the Court of Appeals. 26 Kan. App. 2d
at 237-38. A panel of this court considered the United States Supreme Court's rulings in
McCarty and Mansell:
"Mansell makes it perfectly clear that the state trial courts have no jurisdiction
over disability benefits received by a veteran. The trial court in this case cannot order
Douglas to change the payments back to retirement benefits, and it cannot order him to
pay his disability benefits to Priscilla. We conclude the court may not do indirectly what
it cannot do directly." Pierce, 26 Kan. App. 2d at 240.
The Court of Appeals noted there was no relief possible for the nonmilitary spouse
in the case because the agreements and orders did not forbid the change in benefits or
indemnify her for the same. 26 Kan. App. 2d at 240-42. The court also expressly rejected
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cases from other jurisdictions that asserted that the change in disability pay was a breach
in contract, finding no evidence in the record that the military spouse intentionally
breached the settlement agreement. 26 Kan. App. 2d at 242-43.
Similarly, in In re Marriage of Martin, No. 106,912, 2013 WL 1149674 (Kan.
App. 2013) (unpublished opinion), a veteran agreed to compensate his former spouse in
any amount that his retirement pay was reduced due to disability. Although the state
courts cannot generally divide disability pay, in this instance the recipient former spouse
argued that it was divisible because the veteran had expressly agreed to do so in a
settlement agreement. The district court ruled the veteran spouse in contempt for failure
to turn over additional amounts of his disability pay. 2013 WL 1149674, at *7. A panel of
this court remanded the matter, holding that the district court failed to take 10 U.S.C. §
1408 and Mansell into account regarding jurisdiction. The court held that "the district
court made an error of law in not considering and making appropriate conclusions of law
regarding the jurisdictional implications of this federal statute." 2013 WL 1149674, at *8;
see also In re Marriage of Dashiell and Eidemiller, No. 95,086, 2006 WL 2563304, at *2
(Kan. App. 2006) (unpublished opinion) (no jurisdiction to order division of military
disability benefits).
Since Mansell resulted in a harsh result for some former spouses of veterans,
throughout the years many state courts have found ways to distinguish the facts of cases
from those in Mansell. For example, the Virginia Court of Appeals determined that an
agreement to provide a certain percentage of retirement pay to a former spouse—along
with an indemnification provision—allowed the district court to enforce the agreement by
ordering payment from other sources other than disability pay. See Owen v. Owen, 14 Va.
App. 623, 627-28, 419 S.E.2d 267 (1992). The Idaho Court of Appeals determined that a
property settlement agreement that fixed a certain dollar amount from military pay can be
enforced even if the disability pay later reduces the retirement pay as long as the court
orders the payment from other sources. McHugh v. McHugh, 124 Idaho 543, 545, 861
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P.2d 113 (Ct. App. 1993). And in Abernathy v. Fishkin, 699 So. 2d 235, 239 (Fla. 1997),
the Florida Supreme Court held that even though Mansell prohibited the district court
from dividing disability benefits, it did not prohibit the voluntary assignment of such
benefits under the terms of a settlement agreement. But see Mallard v. Burkart, 95 So. 3d
1264, 1272 (Miss. 2012) (federal preemption prevents distribution of military disability
benefits under property settlement agreement).
In response to the state courts' differing interpretations of Mansell, the United
States Supreme Court readdressed the preemptive effect of the Act in Howell, 137 S. Ct.
1400. In Howell, the divorce decree awarded 50% of a veteran's future military retired
pay to his former spouse. As is often the case, years later the veteran waived a portion of
his retired pay in favor of disability benefits, thereby reducing the former spouse's award.
The nonmilitary former spouse sought to enforce the decree in order to restore the
amount of her share of the veteran's retired pay. The Arizona court concluded that the
former spouse had received a vested interest in the original decree and ordered the
veteran to make up the difference lost due to the disability waiver. The Arizona court
ruled that federal law did not preempt the court's order.
The United States Supreme Court reversed the Arizona court, holding that a state
court may not order a veteran to indemnify a divorced spouse for the loss in the divorced
spouse's portion of the veteran's retirement pay caused by the veteran's waiver of
retirement pay to receive service-related disability benefits. 137 S. Ct. at 1405-06. The
Supreme Court stated that the district court could not vest the former spouse with that
which it lacked the authority to give. 137 S. Ct. at 1405. The Howell Court also
specifically rejected the argument that a nonmilitary spouse can be reimbursed or
indemnified if disability pay is obtained, as these rulings displace the purpose of the
statute and are an obstacle to the purposes and objectives of Congress. 137 S. Ct. at 1406.
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Although Howell involved a divorce decree and not a property settlement
agreement, the Supreme Court expressly stated that it was abrogating several cases
dealing with property settlement agreements. And significantly, the Court impliedly
endorsed Mansell and its restriction on using a property settlement agreement to divide
pay. The Court overruled cases relying on the sanctity of contract to escape federal
preemption. 137 S. Ct. at 1404-05.
Roslyn's contentions rely almost exclusively on contractual arguments. She asserts
that Nickey agreed to give her 43% of his disability benefits as part of a mediation
agreement, and he could voluntarily allocate a portion of his disability payments to her.
She asserts it is "no more objectionable than it would be if he decided to use that
disability payment to buy groceries and gas at the local convenience store." Roslyn
asserts that "[o]nly if the holding in Howell is construed so as to prevent a service
member from spending his or her disability pay as he or she deems fit, would the action
of the trial court below be subject to reversal." Although creative, we believe this
argument does not follow the intent of Congress, which is to ensure that the disability
benefit goes to the support of the veteran, not to the support of others.
We are convinced that the division of Nickey's disability compensation—even
through a mediated settlement agreement—is simply not permitted by federal law. The
district court lacked jurisdiction to order such a division of benefits, especially over
Nickey's objection to the division of property. The district court's ruling that Nickey
contracted away his right to his full disability pay must be reversed.
The Act does not allow for the treatment of disability compensation as marital
property, and it specifically excludes from marital property those amounts of retired pay
that are waived in favor of disability compensation. 10 U.S.C. § 1408(a)(4)(A). In
Howell, the Supreme Court held that state courts "cannot 'vest' that which (under
governing federal law) they lack the authority to give." 137 S. Ct. at 1405. Military
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disability compensation is not among the military benefits that may be divided as marital
property, and the district court lacked jurisdiction to enforce such a division of property.
The possibility of indirect relief
For his second argument, Nickey asserts that this court has no authority to
indirectly divide his military disability benefits. Nickey appears to be seeking an advisory
opinion by raising this issue, as there is no asserted error by the district court that can be
reviewed by this court. However, for the guidance of the district court on remand, we
believe some analysis may be appropriate.
Because federal law precludes state courts from dividing military disability
compensation as marital property, the portion of the judgment dividing Nickey's
disability compensation is unenforceable. The question is whether we should merely
vacate that portion of the property division or if remand is appropriate for the district
court to reconsider the equitable division of property.
In In re Marriage of Bahr, 29 Kan. App. 2d 846, 849, 32 P.3d 1212 (2001), the
Court of Appeals found that a veteran spouse's disability benefits can be considered when
calculating the need for maintenance. In this case, the district court withheld its ruling on
maintenance as it considered the federal preemption question regarding Nickey's
disability benefits. Although clearly the district court cannot divide any of Nickey's
disability payments, it is permissible for the court to consider the financial impact of
disability pay when dividing assets and ordering spousal support.
"We recognize, as we recognized in Mansell, the hardship that congressional pre-
emption can sometimes work on divorcing spouses. [Citation omitted.] But we note that a
family court, when it first determines the value of a family's assets, remains free to take
into account of the contingency that some military retirement pay may be waived, or, as
the petitioner himself recognizes, take account of reductions in value when it calculates
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or recalculates the need for spousal support. [Citations omitted.]" Howell, 137 S. Ct. at
1406.
So there is nothing in the federal law that prevents state courts from considering disability
pay in dividing other assets.
We note that in his proposed findings to the district court Nickey recognized that
there might be a reduction in regular military pension benefits if the VA granted him a
disability waiver, and in fact proposed that "the actual reduction of any portion of
[Roslyn's] 43% share shall be . . . denominated as maintenance payable by [Nickey] to
[Roslyn]." On appeal, Nickey now asserts that the district court's award of spousal
maintenance cannot be reconsidered because Roslyn did not file a cross-appeal. But
spousal maintenance was reserved by the court to be considered as part of its ruling on
the division of disability benefits. Because the district court's order is being vacated, we
hold that the district court is free to reconsider the award of spousal maintenance on
remand.
Here, the district court erroneously ruled it could enforce the settlement agreement
regarding Nickey's disability payments. In so ruling, it chose the agreed-upon amount of
maintenance of $800 per month. On remand, the district court is free to reconsider its
ruling on spousal maintenance in its determination of an equitable division of property.
See In re Marriage of Bahr, 29 Kan. App. 2d at 849.
Reversed and remanded with directions.
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