This post was inspired by a reader who sent me an email questioning how Colorado can treat VA disability payments as income when federal law prohibits states from dividing VA benefits, and does not explicitly authorize states to count them as income.
Every so often my firm receives profanity-laden emails from disgruntled strangers who are upset because they disagree with how the law is being interpreted. And they blame me, your humble correspondent, for articles which merely report on how the courts have ruled, without advocating for or against the judicial interpretations. Most of those emails are intercepted before I even see them.
But this time was different – the reader sent a lengthy email which was polite, well-reasoned, and he showed an understanding of the issue by citing state and federal statutes and court decisions, including Scalia’s consenting opinion from the 1987 U.S. Supreme Court Rose case on VA disability. So I figured this one deserved my attention – something which I rarely have time to do for non-clients. And as I was wrapping up the response, I further decided that since this is a common question, I would write a blog post specifically addressing this one issue, rather than it being buried in various articles on our websites.
- States Cannot Divide VA Disability as Property in a Divorce
- VA Disability Can Be Garnished for Child Support
- Treating Disability as Income for Family Support?
- Courts Uphold VA Disability Benefits Counting as Income for Child Support
States Cannot Divide VA Disability as Property in a Divorce
Let’s address the 800 pound gorilla first. Federal law unequivocally denies states the ability to divide VA disability payments in a divorce.
Uniformed Services Former Spouses Protection Act
The specific statutory cite prohibiting states from dividing VA payments a divorce is the Uniformed Services Former Spouses Protection Act (USFSPA) at 10 U.S. Code § 1408(1)(4)(A)(ii).
Note that the USFSPA does not clearly reference VA disability payments. But VA disability is paid pursuant to 38 U.S. Code Chapter 51, so when the statute excludes payments received “as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38” (Emphasis added) from the definition of disposable retired pay states are permitted to divide, it’s the feds’ way of referring to VA disability payments.
Moreover, VA benefits have a non-assignability provision in 38 U.S. Code § 5301, preventing any creditor or court from touching them except as authorized by law.
U.S. Supreme Court Howell Decision
Further, the Supreme Court ruled in the 2017 Howell decision that state courts cannot divide VA disability payments through the “back door” by requiring retirees to indemnify former spouses for the reduction in military retirement due to the VA waiver. See our VA Waiver in a Divorce article in the Military Divorce Guide for more information.
Colorado Courts – No Division of VA Disability as Property
Prior to Howell, Colorado was among the majority of states which required indemnity for a post-decree VA waiver of military retirement. Since the Howell decision, Colorado has adjusted fire, and held that not only are family law judges prohibited from ordering indemnification payments for a VA waiver, but courts cannot even compensate the spouse in other ways for losing retirement due to the VA waiver:
“Thus, courts may not shift marital property to avoid the requirements of the USFSPA or Mansell’s holding, nor may they financially compensate a former spouse for not receiving a share of the military spouse’s disability pay.”Copeland, ¶ 13 (Cleaned up)
For a complete discussion of the Copeland case, see our blog post on veterans disability benefits not being divisible in a divorce.
So this settles it, right? There are multiple provisions in the United States Code which appear to put VA disability payments in a lockbox, not to be touched by the states. SCOTUS has stepped in to unanimously benchslap states who were using what the Court called “semantics” to effectively divide disability payments by calling it indemnification for the VA waiver. And Colorado has fallen into line with Copeland and other decisions since 2017.
VA Disability Can Be Garnished for Child Support
But not so fast – the first clue that federal restrictions on states touching VA disability are limited in scope is the fact that federal law explicitly allows states to garnish VA disability payments to the extent of a VA waiver. 42 U.S. Code § 659(h)(1)(A)(v). So the disability payments received by a non-retiree veteran who receives disability payments cannot be garnished. And similarly, the disability received by a regular 20-year retiree who has a disability rating of 50% or higher, so there is no VA waiver in effect, can also not be divided.
Apportionment vs Garnishment
Note that the VA also has a separate mechanism called “apportionment”, which is when the VA can make direct payments to the family members of a separated veteran. (See 38 CFR § 3.452 for more details). While the Rose decision discusses apportionment at length, this post is about how states treat VA payments for income purposes, not whether (or how) states can apportion VA payments.
Treating Disability as Income for Family Support?
So how does any of this allow states to treat VA disability as income for purposes of calculating child support or maintenance? By having to pay more support because of her disability benefits, is the state effectively dividing the benefits themselves? Not under current law.
Treating VA Disability as Income is Not Dividing it as Property
The fact that a state cannot divide a payment as property does not mean the payments are invisible to family law courts when determining maintenance. The definitions of income in. While several federal statutes have “anti-alienation” provisions which limit when creditors or state courts may garnish certain federal payments, there is nothing in any of those statutes which purport to prevent states from including those payments in the definition of income when calculating family support. Similarly, I am aware of no federal regulation, or of a binding interpretation from a department secretary which tells states how to calculate income.
Internal Revenue Code Excludes VA Disability for Federal Tax Purposes Only
26 U.S. Code § 104(a)(4) explicitly provides that VA disability benefits are not income. But that’s for purposes of federal income tax. The Internal Revenue Code applies to the IRS – it does not purport to control how states can define income, either for tax purposes, or, relevant to this blog post, for purposes of calculating family support. However, a separate provision in federal law appears to prohibit VA disability benefits being taxed altogether. 10 U.S. Code § 5301(a)(1) (Note – I’m not a tax expert, so despite every state I’ve seen exempt VA disability from taxation, you should confer with a CPA in your jurisdiction for definitive guidance on the tax implications of VA disability).
But the fact that those two statutes prohibit taxing VA disability does not prevent states from counting it as income for other purposes (indeed, veterans can also count it as income, if they desire, for example when applying for a mortgage). If the tax code imposed a limitation on how states define income, then counting gifts as income would violate section 102 of the Internal Revenue Code, which excludes gifts and inheritances from taxable income.
Colorado Treatment of Tax-Free or Non-Divisible Benefits for Income Calculation Purposes
There are plenty of examples in Colorado’s maintenance & child support statutes which include as income certain payments which (1) the federal government excludes as income for purposes of taxation, or (2) are explicitly not divisible under federal law. Here is just a small sample of some of the more common payments:
- Social Security and SSDI payments. While federal law prevents states from dividing Social Security payments as property, most payments from the Social Security Administration are included in Colorado’s definition of income for purposes of family support.
- Post 9/11 GI Bill Monthly Housing Stipend. GI Bill benefits cannot be divided in a divorce, but Colorado treats the monthly stipend only (i.e. not the tuition reimbursement) as income for purposes of family support.
- Tax-Free Military Allowances. Military members receive BAH, BAS, and various other tax-free benefits (including even base pay, when deployed to a hostile fire zone). Colorado treats all military payments as income for family support purposes.
- Combat-Related Special Compensation. CRSC payments are not divisible property in a divorce, but count as income for purposes of family support.
- Chapter 61 Disability Retirement. PDRL payments are not divisible property, but count as income for family support purposes.
- Military Pay. While states cannot tax the military pay of non-resident members stationed in the state, when a civilian spouse is working, the military pay may count as income for purposes of determining the spouse’s tax rate (not in Colorado, where we have a flat-rate income tax).
- Premarital Retirement. A retirement (military or civilian) which was completely earned before marriage is not a divisible marital asset, but the retirement payments still count as income for family support purposes.
- Business Expenses/Depreciation. Federal law excludes from income for tax purposes certain business expenses such as accelerated depreciation, mobile phone bills, company vehicles, home-office expenses, etc, which Colorado law would add back into a party’s income when they reduce the party’s living expenses.
- Gifts. Even gifts, which are not taxable income under federal law, still count as income in Colorado for purposes of determining child support or alimony.
Nowhere in federal law do states have permission from the feds to treat any of these payments as income, but every single state does treat at least some, if not all, of the above as income when calculating child support or maintenance. And logically, this must be the case – imagine the outcome if a military member deployed for a year, received $80K tax-free, but paid nothing in child support or maintenance because states were prohibited from considering his tax-free income.
Or imagine a military veteran receiving tax-free VA disability and tax-free CRSC payments, totaling $6K/mo, but no military retirement. Those payments are not invisible to the state when calculating support, even though they are not divisible as property.
When even a gift from one’s parents counts as income, that tells you that states are not singling out VA disability for discriminatory treatment – on the contrary, states treat VA benefits the same as they do any other tax-free payments which may not be divisible as property, but still count as income for purposes of determining what support or maintenance a person owes.
Courts Uphold VA Disability Benefits Counting as Income for Child Support
Time and time again, courts throughout the U.S. have upheld states treating VA disability benefits as income for purposes of determining alimony or child support. I’m a family law attorney, not a constitutional scholar, and certainly not an administrative attorney, so my cop-out is that I am ill-equipped to argue with so many men and women in black judicial robes. It’s not like every judge in the union, red state or blue, could be biased against military veterans – if federal law prohibited states counting disability as income, then there would be some reported decision somewhere holding this – either at the state level, or through a collateral attack in federal court.
U.S. Supreme Court Upholds Treating VA Disability as Income
SCOTUS itself expressly approved of a state law which noted that the parties to that case all agreed “a state court may consider disability benefits as part of the veteran’s income in setting the amount of child support to be paid.” Rose, at p.626. Eight justices expressly agreed with that section of the ruling, including Justice Scalia’s concurring opinion, which opens with:
“I concur in the judgment of the Court that none of the statutes cited by appellant or the United States bars the Tennessee court from basing child support awards on a parent’s veterans’ benefits.”Rose, at p.626 (Scalia, J, concurring).
Note that in Rose, the court did not expressly analyze the treatment of VA disability benefits as income – instead, that issue was glossed over as pretty much a “given” – one which was not in remote doubt. (Lawyers call this dicta – guidance from the court, but not necessarily an express holding). The specific issue in Rose concerned enforceability of state court support judgments against Veterans Administration payments, not how the support amounts were calculated.
Did Veterans’ Judicial Review Act Overturn Rose?
Critics would say that Rose was decided in 1987, and shortly thereafter, Congress passed a statute, the Veterans Judicial Review Act which includes as a provision this language limiting judicial review and vesting full authority in the Secretary of the VA:
“The Secretary shall decide all questions of law and fact necessary to a decision by the Secretary under a law that affects the provision of benefits by the Secretary to veterans or the dependents or survivors of veterans. Subject to subsection (b), the decision of the Secretary as to any such question shall be final and conclusive and may not be reviewed by any other official or by any court, whether by an action in the nature of mandamus or otherwise.”38 U.S. Code § 511(a)(1).
But while section 511 is new, this statutory language is not. The former 38 U.S. Code § 211(a)(1), in effect at the time of the Rose decision, had similar language in it:
“decisions of the Administrator on any question of law or fact under any law administered by the Veterans’ Administration providing benefits for veterans and their dependents . . . shall be final and conclusive and no other official or any court of the United States shall have power or jurisdiction to review any such decision…”
While there are differences in the language, the bolded language is potentially a significant difference – the earlier version of the statute precluded judicial review by “any court of the United States” (i.e. federal courts), while the current language reads “by any court”. This is way outside my area of expertise, so I’m not sure if this is intended to preempt state courts from decisions contrary to the VA secretary or not.
But this is very likely moot. The Veterans’ Judicial Review Act does not prohibit courts from interpreting the law, but simply provides that they cannot overturn a decision from the VA Secretary. And my (admittedly limited) research has uncovered no VA determination on the issue of counting VA disability for child support purposes – if there were, I think some court somewhere would have addressed this by now. So there is no contradiction between VA and state court interpretations which would require deference to the VA.
Moreover, in Rose the Supreme Court rejected the argument that the Veterans’ Judicial Review Act was intended to preempt state law on child support, holding instead that it was intended to provide deference to the VA Secretary on technical issues of whether a veteran was entitled to benefits:
“As already noted, however, we can find no clear indication that Congress intended the Administrator to make child support determinations contrary to the determinations of state courts. The interest in uniform administration of veterans’ benefits focuses, instead, on the technical interpretations of the statutes granting entitlements, particularly on the definitions and degrees of recognized disabilities and the application of the graduated benefit schedules. These are the issues Congress deemed especially well-suited for administrative determination insulated from judicial review. Thus, even assuming that § 211(a) covers a contempt proceeding brought in state court against a disabled veteran to enforce an order of child support, that court is not reviewing the Administrator’s decision finding the veteran eligible for specific disability benefits.”
Rose, at p.629 (Cleaned Up).
In 2012, the Supreme Court had an opportunity to revisit whether states could treat VA disability payments as income for family support purposes in the Barclay case arising out of Oregon, which even received some national media attention. However, in docket No. 11-1453, SCOTUS denied cert, and national military family law expert Marshal Willick wrote a detailed legal analysis, concluding that (my paraphrase) there is no serious legal argument against treating VA disability as income.
Finally, don’t blame the messenger. I’m not a lobbyist, nor am I advocating for a particular position, but am simply reporting on how states treat VA disability benefits, and if there is a contrary reported appellate decision holding that federal law prohibits treating disability as income, I’d love to hear about it.
2021 Colorado Court of Appeals – VA Disability Counts as Income
Finally, since I’m a Colorado family law attorney, I would be remiss not to mention a recent Colorado case on this very issue. In M.E.R-L, the Colorado Court of Appeals analyzed this issue at length, and noted the national consensus for treating disability benefits as income:
“Father cites to no case that holds that the USFSPA prohibits states from including veteran’s disability benefits in a veteran-parent’s income when calculating a child support obligation. Nor are we aware of any such case. To the contrary, every court we have found that faced this issue rejected the preemption argument.”M.E.R-L, ¶ 29.
After listing a long list of cases, the court concluded this about including VA benefits as income: “We are aware of no state that declines to do so. We are not persuaded to swim against this formidable tide.” ¶ 29. For a more detailed discussion of the M.E.R-L case, see our blog post VA Disability and Child Support: It’s Income.
The takeaway? There are passionate advocates against treating disability as income, but thus far, none of that passion has translated into favorable court rulings, or attention from Congress to change, or at least explicitly clarify, the law.
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