In re the Marriage of Herald

KISTLER, J.,

dissenting.

The issue in this dissolution proceeding arises from the fact that husband is eligible to receive Social Security benefits on retirement while wife is not. She is eligible to receive a different federal retirement benefit. Ordinarily, retirement benefits are a form of property that is subject to division in dissolution proceedings. As a matter of federal law, however, husband’s Social Security benefits are not subject to a property division, nor may a trial court redistribute the parties’ property to compensate for that federal policy choice. See Hisquierdo v. Hisquierdo, 439 US 572, 99 S Ct 802, 59 L Ed 2d 1 (1979) (considering a similar statutory scheme). Additionally, Congress has specified the amount of Social Security benefits that a divorced spouse who would not otherwise be eligible for those benefits can receive. 42 USC § 402(b). And it also has specified how those Social Security benefits should be adjusted when, as in this case, the spouse who is not eligible for Social Security benefits is eligible to receive other federal retirement benefits. 42 USC § 402(k)(5)(A).

That federal statutory scheme precludes state courts from adjusting the parties’ retirement benefits to compensate for the inability to divide one spouse’s Social Security benefits as part of a property division. Hisquierdo, 439 US at 588. That is, however, precisely what the trial court did here. The trial court explained that it was inequitable and unfair that husband’s Social Security benefits were not subject to *133a property division but that wife’s federal retirements benefits were. To compensate for that inequity, the trial court reduced the amount of wife’s retirement benefits that were subject to division to offset the Social Security benefits that federal law entitled husband to retain. In making that adjustment, the trial court did exactly what Hisquierdo said it may not do.

To avoid any misunderstanding, I do not mean to suggest that the Social Security Act precludes any consideration of Social Security benefits in making a just and equitable division of property. The question is not whether state courts can consider those benefits but the terms on which they may do so. In this case, the trial court did not divide all the parties’ property on some neutral basis. Rather, it reduced the amount of wife’s retirement benefits that were subject to division specifically to counterbalance the Social Security benefits that husband retained. Because that order cannot be reconciled with Hisquierdo, I respectfully dissent.

Before turning to the legal principles that govern this case, it is helpful to describe more completely the basis for the trial court’s order in this case. Both husband and wife are federal employees. Husband is eligible for Social Security benefits on retirement. Wife is not, but she is eligible for a different federal benefit on retirement — Civil Service Retirement System (CSRS) benefits. As both husband and wife agree, the Social Security Act prevented the trial court from including husband’s Social Security benefits in the property division, and it also precluded the trial court from offsetting those benefits with a corresponding benefit to wife. See Hisquierdo, 439 US at 586-88. Although Congress has provided that Social Security benefits are not subject to division, it has expressly provided that CSRS benefits may be divided in a dissolution proceeding. See McCarty v. McCarty, 453 US 210, 231-32, 101 S Ct 2728, 69 L Ed 2d 589 (1981).1

*134The trial court found that congressional choice troubling. It stated that, if it divided the parties’ marital assets equally, then husband would get all his Social Security benefits as well as half of wife’s CSRS benefits. As the court explained, “I can’t see how that’s fair or just or equitable. I just don’t understand how that could possibly be what it is that should happen here.” To avoid that inequity, the trial court employed a strategy employed by some other states. The court reduced the amount of the wife’s federal retirement benefits, which are subject to division, to compensate her for the fact that husband’s Social Security benefits are not subject to division.

Specifically, the court determined the amount of Social Security benefits that wife would have received if she had been eligible for them. It then reduced the amount of her retirement benefits by that amount. (The court previously had reduced wife’s retirement benefits to reflect the fact that she had earned some of those benefits before the parties’ marriage.) The trial court then divided wife’s reduced retirement benefit between the parties. As the court explained in its letter opinion, it reduced the amount of wife’s retirement benefits to “ensur[e] that Husband would not get his own social security when he retires and also receive half of what substitutes for Wife’s social security as well.”

The purpose and effect of the trial court’s adjustment are clear. The trial court’s purpose in reducing the amount of wife’s retirement benefits was to offset the Social Security benefits that husband receives. The effect is equally clear. By reducing the amount of wife’s retirement benefits that are subject to division, the trial court ensured that wife will retain a hypothetical Social Security benefit just as husband will retain an actual Social Security benefit. To be sure, the amounts of the hypothetical and actual Social Security benefits that each spouse will retain are not identical. Husband and wife have not had identical earnings over the years, and one will be entitled to receive a greater Social Security benefit (whether hypothetical or actual) than the other. However, the indisputable effect of the court’s order is to allow the wife to retain more of her pension benefits to offset the fact that husband’s Social Security benefits are not subject to division.

*135The United States Supreme Court decisions on this issue are clear. They recognize that ordinarily state law governs the way in which property acquired during marriage will be divided. Hisquierdo, 439 US at 581. They also recognize that federal law will preempt state law only when “[s]tate family and family-property law [does] ‘major damage’ to ‘clear and substantial’ federal interests.” Id. Applying that standard, the Court held in Hisquierdo that, as a matter of federal preemption, federal retirement benefits payable under the Railroad Retirement Act were not subject to division in a state dissolution proceeding. Id. at 587-88. The Court also rejected the wife’s argument in that case that, if the husband’s retirement benefits could not divided, she should receive “an offsetting award of presently available community property to compensate her for her interest in [her husband’s] expected benefits.” Id. at 588. The Court explained that, among other difficulties, “[a]n offsetting award *** would upset the statutory balance and impair [the huband’s] economic security just as surely as would a regular deduction from his benefit check.” Id.

The Court relied on three aspects of the federal statutory scheme in reaching that conclusion. First, it reasoned that allowing the division of the husband’s federal retirement benefits would run afoul of the “flat prohibition against attachment and anticipation” in the Railroad Retirement Act. See McCarty, 453 US at 220 (summarizing that aspect of Hisquierdo’s reasoning). Second, the Court found evidence of Congress’s preemptive intent in an exception that Congress had crafted to the prohibition against attaching or anticipating federal retirement benefits. Congress had provided that, despite the general prohibition against attaching or anticipating federal retirement benefits, those benefits are available to pay child support and alimony. Hisquierdo, 439 US at 577; see 42 USC § 659(a) (permitting actions to recover child support and alimony). Notably, Congress has defined “alimony” narrowly to exclude “any payment or transfer of property or its value by an individual to the spouse or a former spouse of the individual in compliance with any * * * equitable distribution of property, or other division of property between spouses or former spouses.” 42 USC § 659(i)(3)(B); see Hisquierdo, 439 US at 577 (quoting an earlier version *136of that statute). Finally, the Court relied on the fact that Congress had provided a limited spousal benefit for federal employees that terminated on divorce. 439 US at 584-85. Given that statutory scheme, the Court concluded that Congress had preempted the authority that states otherwise would enjoy to divide or offset federal retirement benefits. Id.

This case does not involve retirement benefits payable under the Railroad Retirement Act. Rather, it involves Social Security benefits. The Social Security Act prohibits anticipating and attaching those benefits as the Railroad Retirement Act does.2 Additionally, the Social Security Act makes Social Security benefits available for alimony, and it defines that term narrowly to exclude any payment or other transfer of money “in compliance with any *** equitable distribution of property.” See 42 USC § 659(i)(3)(B) (defining alimony). Finally, as the majority recognizes, the Social Security Act provides a specified benefit for divorced spouses who would not otherwise be eligible to receive Social Security benefits. See 42 USC § 402(b)(l)(A)-(D) and 402(c)(l)(A)-(D). And it also specifies how those benefits will be reduced if the divorced spouse is employed by the federal government and is eligible to receive other federal retirement benefits. See 42 USC § 402(k)(5)(A)(i)-(ii).3

*137Given that statutory framework, wife correctly acknowledges that the reasoning in Hisquierdo applies to Social Security benefits.4 She advances, however, three arguments why Hisquierdo does not control. She argues initially that trial courts need not ignore one spouse’s Social Security benefits in effecting a just and equitable distribution of property. As a general principle, wife’s argument is unexceptionable. Nothing in the Social Security Act prevents trial courts from determining that, in light of the parties’ differing needs or the difficulty in dividing certain pieces of the property, one spouse should get the “long half’ of all the property. The trial court did not take that course, however. Rather, it considered how to allocate the parties’ retirement benefits separately from their other property. And, considering only those benefits, the trial court offset husband’s ability to shield his Social Security benefits from division by reducing the amount of wife’s CSRS benefits that were themselves subject to division.

As a matter of equity, it is difficult to fault the trial court’s instincts. However, as the Court explained in McCarty, Congress amended the definition of alimony in 1977 to exclude “any * * * transfer of property in compliance with any * * * equitable distribution of property.” 453 US at 230. That same year, Congress also “require [d] that Civil Service retirement benefits be paid to an ex-spouse to the extent provided for in ‘the terms of any court order or court-approved property settlement agreement incident to any court decree of divorce * * ” Id. In making those changes, Congress did *138not amend the provision in the Social Security Act that prohibits attachment or anticipation of Social Security benefits. Rather, it left intact the provisions of the Social Security Act that specify when divorced spouses will be eligible for Social Security benefits and when those benefits will be reduced because the divorced spouse is entitled to receive other monthly benefits due to federal employment. To paraphrase the Court’s reasoning in McCarty, when Congress has provided which federal benefits are subject to division and which are not, it is not up to the state courts to devise a more equitable distribution. See id. at 231-32.5

Wife’s second argument turns on her interpretation of federal policy. She recognizes that the Social Security Act prevented the trial court from transferring property to her to offset husband’s retention of his Social Security benefits. See Hisquierdo, 439 US at 588. She argues, however, that nothing in that Act prevented the trial court from reducing the amount of her retirement benefits subject to division for the same purpose. Wife’s argument is puzzling. If wife cannot take property from husband to compensate her for his retention of his Social Security benefits, it is difficult to see how she can withhold property from him for the very same reason. Economically, there is no difference.

To be sure, the amount of federal retirement benefits that wife withholds from division under the trial court’s formulation will not be identical to the amount of Social Security benefits that husband retains. However, wife cannot avoid the fact that the purpose and the effect of the trial court’s order is “to compensate her for her interest in [husband’s] expected benefits,” just as in Hisquierdo. See 439 US at 588. And the trial court’s order in this case is equally in violation of federal policy.6

*139Finally, wife suggests that the decision in Washington State Dept. of Social & Health Servs. v. Guardianship Estate of Keffeler, 537 US 371, 123 S Ct 1017, 154 L Ed 2d 972 (2003), undercuts the Court’s earlier decisions in Hisquierdo and McCarty. Wife reads Keffeler too broadly. In Keffeler, children whom the state had removed from their parents and placed in foster care were entitled to two types of federal benefits under the Social Security Act. Id. at 375-76. Ordinarily, the federal government pays those benefits directly; however, it also may distribute those benefits to a representative payee “for [the beneficiary’s] use and benefit.” Id. at 376. In Keffeler, the federal government paid the benefits to the Washington Department of Social and Health Services, as the representative payee, and the state agency used those benefits to pay foster parents for the care they provided the children. Id. at 379.

A class action was brought on behalf of the children, claiming that the anti-attachment provision in Section 407(a) of the Social Security Act barred the state agency from using federal benefits intended for the children’s benefit to pay the state’s obligation to reimburse the foster parents who cared for them. The Court held otherwise. 537 US at 385-86. It noted that Section 407(a) protects Social Security benefits from “execution, levy, attachment, garnishment, or other legal process.” 42 USC § 407(a). The Court explained that the state agency’s action did not constitute “other legal process” for two reasons.* *****7 First, execution, levy, attachment, garnishment, and other legal process “typically involve the exercise of some sort of judicial or quasi-judicial authority to gain control over another’s property.” 537 US at 386. However, *140the “department’s reimbursement scheme operates on funds already in the department’s possession and control, held on terms that allow reimbursement.” Id. Second, although the object of the process is to discharge “some enforceable obligation,” the state agency “has no enforceable claim against its foster children.” Id.

Put differently, because the state agency was using funds entrusted to it as the representative payee, it was not using judicial authority to gain control over “another’s property,” nor was it seeking to satisfy any claim that it had against the foster children. For those reasons, the Court held that the state agency’s use of the federal benefits to pay for foster care did not come within the terms of Section 407(a) of the Social Security Act.8 Nothing in the Court’s holding in Keffeler calls into question its holdings in Hisquierdo and McCarty — namely, that a trial court order in a dissolution proceeding that requires one divorced spouse to pay the other federal retirement benefits to enforce a state imposed property division constitutes “other legal process” within the meaning of Section 407(a). Not only do those three cases address different issues, but the Court in Keffeler had no reason to consider, as the Court did in Hisquierdo and McCarty, that Congress had expressly excepted child support and alimony from the reach of Section 407(a) and, in doing so, had made clear that that exception does not include “any payment or transfer of property or its value by an individual to a spouse or former spouse in compliance with any *** equitable distribution of property.”

We cannot follow Hisquierdo and McCarty and also uphold the trial court’s order. To be sure, Hisquierdo and McCarty were decided by a divided Court. As the dissents in those cases illustrate, there is more than one way to interpret the preemptive effect of the federal retirement statutes that Congress has enacted. One might question whether Congress intended to interfere with the ordinary processes of state courts in dividing the assets of divorcing spouses. One might also question whether there is a cognizable federal *141purpose in shielding one spouse’s retirement benefits from being included in a property division while expressly permitting the other spouse’s retirement benefits to be divided. The resulting inequity grates on judicial sensibilities and, as the majority opinion details, has resulted in deep and persistent divisions among state courts applying federal law. However, as I read the opinions for the Court in Hisquierdo and McCarty, they do not permit state courts to employ the stratagem the trial court did here. Unless and until the Court limits or reverses those decisions, we are bound to follow them. For that reason, I respectfully dissent.

In McCarty, the Court concluded that Congress had intended to preempt state courts from dividing military retirement benefits in part because Congress had provided that military retirement benefits could not be divided but had provided that CSRS retirement benefits were subject to division. See 453 US at 231-32.

The prohibition against attaching retirement benefits is virtually identical in both acts. The prohibition against anticipation is worded differently. The Social Security Act provides that the “right of any person to any future payment under this subchapter shall not be transferable or assignable.” 42 USC § 407(a) (emphasis added). The Railroad Retirement Act provided that “nor shall the payment [under the act] be anticipated.” 45 USC § 231m (1976). Wife does not argue that that difference is material.

If a divorced spouse is not otherwise eligible to receive Social Security benefits and meets certain other criteria, he or she will receive 50 percent of the amount of the Social Security benefit that the eligible spouse is entitled to receive. 42 USC § 402(b). However, when a divorced spouse is also entitled to receive a “monthly periodic benefit” based on that “individual’s earnings while in the service of the Federal Government or any State,” the divorced spouse’s Social Security benefit under 42 USC § 402(b) will be reduced by two-thirds of the monthly periodic benefit. 42 USC § 402(k)(5)(A)(i)-(ii).

The majority notes that the parties have not addressed how these provisions apply in this case, but that case-specific focus misses the point. Where, as here, Congress has specified how Social Security benefits and other federal retirement benefits should be adjusted on divorce, state courts should not tinker with the balance Congress has struck.

Wife does not argue that Hisquierdo or McCarty’s reasoning is inapplicable because Congress has since amended the statutes underlying those cases to permit division of railroad retirement and military pension benefits in state dissolution proceedings. See Pub L 98-525, § 643(a)-(d), 98 Stat 2547 (1984) (military pension benefits); Pub L 98-76, § 419(a), 97 Stat 438 (1983) (railroad retirement benefits). As wife implicitly recognizes, Congress has not similarly amended the Social Security Act. Congress may have thought that no amendment to the Social Security Act was necessary both because it had already specified the amount of Social Security benefits available for divorced spouses who would not otherwise be eligible for those benefits and because it had specified how those benefits should be reduced if, as in this case, the divorced spouse is eligible for other federal retirement benefits. Whatever the reason for Congress’s inaction, the Social Security Act still contains virtually the same terms that the Court interpreted in Hisquierdo and McCarty, and the question is how to reconcile the trial court’s order in this case with the Court’s interpretation of those terms in Hisquierdo and McCarty.

The question in McCarty was whether, on dissolution of a marriage, federal law precluded a trial court from dividing military nondisability retired pay pursuant to state community property laws. 453 US at 211. As in this case, Congress had made some types of federal retirement benefits subject to equitable division in dissolution proceedings while shielding other federal retirement benefits from that process.

The Court noted two independent problems with the wife’s proposed offset in Hisquierdo. 439 US at 588-90. First, it reasoned that an offsetting award “would upset the statutory balance [that Congress has struck] and impair [the husband’s] economic security just as surely as would a regular deduction from his *139benefit check.” Id. at 588. Second, the Court noted that the harm might even be greater because the present value of the property transferred to wife might turn out to be more than the present value of the Social Security benefits that the husband would ultimately receive. Id. at 588-90. The trial court’s order presents the first and primary problem that the Court identified in Hisquierdo, not the second, more hypothetical concern.

The Court explained that, as used in Section 407(a), the phrase “other legal process” refers to process that

“require [s] utilization of some judicial or quasi-judicial mechanism, though not necessarily an elaborate one, by which control over property passes from one person to another in order to discharge or secure discharge of an allegedly existing or anticipated liability.”

537 US at 385.

The Court also held that the state agency’s use of Social Security benefits to pay for the past and current maintenance of the foster children complied with the statutory requirement that the payee distribute the funds “for [the beneficiary’s] use and benefit.” 537 US at 386-88.