Stacy v. Stacy

• Decision Date: 13 March 2020
• Docket Number: No. 19-P-109,19-P-109
• Parties: Kathy STACY v. Barry STACY.
• Court: Appeals Court of Massachusetts

97 Mass.App.Ct. 160

144 N.E.3d 899

Kathy STACY

v.Barry STACY.

No. 19-P-109

Appeals Court of Massachusetts, Worcester..

Argued November 4, 2019

Decided March 13, 2020

Anne E. Grenier, Worcester, for the husband.

Saman S. Wilcox, Worcester, for the wife.

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

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 (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, 916 N.E.2d 330 (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 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 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, 107 S.Ct. 2029, 95 L.Ed.2d 599 (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 United States Supreme Court. See Hisquierdo v. Hisquierdo, 439 U.S. 572, 581, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979). We review questions of Federal preemption de novo. See Hitachi High Techs. Am., Inc. v. Bowler, 455 Mass. 261, 263, 916 N.E.2d 322 (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, 361 N.E.2d 1305 (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, 361 N.E.2d 1305, 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 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, 25 L.Ed. 180 (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 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, 99 S.Ct. 802. Other Supreme Court opinions have addressed preemption issues in connection with, for example, military retirement pay, see McCarty v. McCarty, 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589 (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, 70 S.Ct. 398, 94 L.Ed. 424 (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, 681 N.E.2d 852 (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 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, 10 S.Ct. 850, 34 L.Ed. 500 (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 preempted.’... 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, 107 S.Ct. 2029, quoting Hisquierdo, 439 U.S. at 581, 99 S.Ct. 802. 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 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...