Thursday, June 14, 2012

Veterans’ benefits are exempt from equitable distribution, except when they are not.

The Superior Court of Pennsylvania (our appellate court) recently decided a case regarding a dispute related to Husband’s veteran disability benefits.  Goodemote v. Goodemote, 2012 PA Super 94 (May 1, 2012).  Husband and Wife were married from 1991 until they separated in 2007.  Husband is a veteran, who served in the Vietnam War and suffered injuries.  He received veteran disability payments from 1969 until present.  Until 1978, he deposited his veteran disability payments into an investment account.  He never withdrew funds from the account or otherwise used it for his own support or his wife’s support during the time the parties were married.  However, the value of the investment account more than doubled due to the reinvestment of the interest and dividends.  From the time the parties married until their separation, the increase in the value of the investment account was approximately $84,000.00.  

During the divorce proceedings, Husband took the position that the veterans benefits in the investment account were not subject to equitable distribution due to the portion of the Pennsylvania equitable distribution statute that protects these types of benefits and states: “Marital property does not include: . . . veterans’ benefits exempt from attachment, levy or seizure pursuant to the Act of September 2, 1958 (Public Law 85-857, 72 Stat. 1229), as amended, except for those benefits received by a veteran where the veteran has waived a portion of his military retirement pay in order to receive veterans’ compensation.”  23 Pa.C.S.A. Section 3501(a).  

During the divorce proceedings, the equitable distribution Master declined to include the investment account or the gains thereon as part of the assets subject to distribution, relying on the Pennsylvania statute as well as a federal statute which states: 
Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary.
38 U.S.C. §5301(a)(1).  

In this matter, the equitable distribution Master characterized the entire investment account (the original deposits and the investment gains) as veteran’s benefits and decided that Pennsylvania and federal law prevented Wife from claiming any part of the account as part of the marital estate.

Wife filed Exceptions to the Master’s report and the trial court reversed the Master and held that the gains on the investment account was subject to equitable distribution. Husband then appealed.  

The Appellate Court reviewed the relevant case law, particularly the U.S. Supreme Court case of Porter v. Aetna Casualty & Surety Co., 370 U.S. 159 (1962) which established a three part test as to whether veterans’ disability payments retain their exempt status:
(1) funds must be “readily available as needed for support and maintenance;” 
(2) funds must “actually retain the qualities of money;” and 
(3) funds must “have not been converted to permanent investments.”  Porter, 370 U.S. at 162

In this case, Husband failed to meet the third prong of the test, because he had placed his veterans’ payments in an investment account, thus converted them to permanent investments.  Accordingly, the court concluded that the increase in the value of the investment account was marital property, subject to equitable distribution between Husband and Wife.  Therefore, Wife will receive an equitable portion of the gains on Husband’s investment account, even though the original monies deposited in the account were protected veterans’ benefits.

Confusing?  Technical?  Surprising?  Divorce law can be all three and, at times, even counter-intuitive.  Have your case reviewed by an experienced, local attorney so that you receive and can rely on the best, most comprehensive advice.


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