Sunday, May 4, 2014

Hands Off the Bennies!

Manning v. Schultz, 2014 VT 22

By Christopher A. Davis

Can a court award money to one party in a divorce to offset the difference in the parties’ projected Social Security benefits? No, it can’t.

Husband and wife file for divorce. They don’t agree on how to value their stuff and end up arguing over how to divide it all up. Wife submits a list of assets that credits a big chunk of money to husband’s suggested share of the marital estate for the difference between the present value of the parties’ projected Social Security benefits (his are more valuable, according to her accountant). Trial court finds her proposed property division as set forth in her list of assets to be reasonable, and allows her to pick between two options she submitted for proposed property division and spousal maintenance. Husband appeals.

Husband argues that by crediting the difference in projected SS benefits (almost $90,000.00) to his portion of the marital estate, the court violated state and federal law. The federal claim is premised on case law holding that the Social Security Act prohibits state courts from considering SS benefits as marital property to either be divided or offset (in part because of their speculative nature). Sounds pretty solid, but wife says, “You didn’t argue it below, you shouldn’t be allowed to argue it now.” Husband replies, “But I did argue to the trial court that its consideration of SS benefits was unduly speculative, both in my proposed findings and in my motions to reconsider!” The SCOV doesn’t buy it, and finds while related, the argument about the speculative nature of the benefits did not fairly apprise the trial court of husband’s preemption argument.

Advantage wife, but the dispensation of high-court fist-bumps around appellee’s table is premature as the SCOV actually uses the same logic from its denial of husband’s federal law claim to reverse the trial court’s decision on state law grounds. See, the federal preemption decisions that husband only wishes he could rely upon do provide that SS benefits are not a “property or contractual right amenable to division, but rather a product of social-welfare legislation that is open to alteration, modification, reduction, or even elimination at the will of Congress.” In other words, SS benefits are too speculative to be considered in division of marital property, which is what husband did actually argue, which is why his state law claim is preserved.

And the SCOV does buy that argument, wholeheartedly and without reservation. After all, state courts have “universally” acknowledged that Social Security benefits are not marital property. In doing so, they’ve looked to U.S. Supreme Court decisions that focused on the non-contractual and speculative nature of SS benefits (so designed to allow Congress legislative flexibility) in concluding that, for example, termination of a deported alien’s SS benefits did not constitute deprivation of a property right, or that state courts were precluded from dividing or offsetting benefits under analogous provisions of the Railroad Retirement Act (covering railroad workers not covered by Social Security).

State courts are divided, however, on whether SS benefits can be considered generally in the equitable division of the marital estate, without specific division or offset of the benefits themselves. Massachusetts, Maine, and Ohio say SS benefits are one relevant factor to be considered in equitable distribution. Illinois, Nevada, and Oregon say “consideration” amounts to division or offset, which is clearly prohibited.

In this respect, the SCOV lines up with our neighbors to the west, concluding that SS benefits are not marital property, and should not be divided, offset, or considered in division of the marital estate. Then, in delightfully Vermont fashion, the Court points out that actually, nobody really owns the benefits anyway, making them more of an expectancy (like a revocable trust or will), and therefore, in keeping with Vermont case law on those topics, SS benefits cannot be considered divisible marital property with definable value. The trial court here erred in so considering the benefits, and the case is remanded for the trial court to recalculate the award according to the original percentage division that wife elected per the trial court’s order.

So sayeth the High Court.

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