Stacy v. Stacy ( 2020 )

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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).