Military Disability Benefits and Distributive Awards

Generally, military disability benefits are exempt from distribution in equitable distribution actions. Here we see whether the court can consider these benefits as income to satisfy a distributive award pursuant to an equitable distribution order. (In this case, Plaintiff improperly filed a Rule 60 motion to set aside the judgment, which is outside the scope of this blog.)

Timothy Lesh v. Margaret Lesh, 809 S.E.2d 890 (N.C. App. 2018)

• Facts: The parties’ marriage was on October 14, 1989, and subsequently divorced on September 16, 2014. In the divorce, claims were made by Ms. Lesh for post-separation support, alimony, and equitable distribution of parties’ marital property. The court entered an Equitable Distribution Order on April 13, 2016, requiring Mr. Lesh to pay Ms. Lesh $877.22 monthly. Mr. Lesh appealed the Order stating that it was irregular and required him to use his military disability benefits to pay the award despite the federal preemption prohibiting state courts from ordering payments of military disability benefits for distributive payments.
• Issue: Does federal law prohibit a veteran’s disability benefits from being considered as income to satisfy a distributive award pursuant to an equitable distribution order under federal preemption?
• Holding: The N.C. Court of Appeals held that the courts are not required to exclude military disability benefits as income in determining distributive awards. Federal law does not preempt the portion of the Equitable Distribution Order requiring Mr. Lesh to make distributive payments.

 

Rationale:  The North Carolina Court of Appeals noted that in Mansell v. Mansell, 490 U.S. 581 (1989), the Supreme Court of the United States held that military veterans that have served at least 20 years could retire with retired pay and elect to waive a portion of this retired pay to receive the same amount in military disability benefits. Federal law prohibits veterans from receiving both retirement and disability benefits, and the veteran is required to waive the corresponding portion of their retirement benefit. (Id. at 583).

Since Mansell, North Carolina courts have held that military disability benefits should not be considered marital property and subject to distribution. In Bishop v. Bishop, 440 S.E.2d 591, 597 (N.C. App. 1994), this Court held that the veteran’s service-related disability retirement should not be classified as marital property.

This Court noted that Mansell did not address whether military disability benefits may be considered as income to determine the ability to pay a distributive award. To solve this question, this Court reviewed the United States Supreme Court ruling in Rose v. Rose, 481 U.S. 619 (1987), which allowed veteran disability benefits to be classified as income in a child support action. This Court was guided by the N.C. Supreme Court decision in Comstock v. Comstock, 771 S.E. 2d 602, 614 (N.C. 2015), where a defendant’s U.S. Trust IRA, classified as separate property, not subject to division, was included as available income to satisfy a distributive award.

In analyzing the above case law, this Court found that in an equitable distribution case where the court is considering a veteran’s income to order payment of a distributive award, the veteran’s military disability benefits, while not subject to division as marital property, may be treated as income from which the distributive award payments may be made. For the above reasons, federal law does not preempt the payment of the Equitable Distribution Order from the veteran’s military disability benefits.