Gains on Invested VA Disability Benefits are Marital Property

The Superior Court this week heard the plea of a Vietnam Veteran who argued that the increase in value of his VA benefits, which had been deposited into an investment portfolio prior to marriage, should retain the exempt character of the underlying VA benefits, which may not be divided in equitable distribution. One cannot imagine a fact pattern more perfect than that Goodemote v. Goodemote, 2012 PA Super 94 (May 1, 2012). The veteran, who was previously divorced, accumulated his VA benefits during his first marriage. He deposited his VA disability benefits into an investment account in his sole name, which was awarded to him in his first divorce. He never deposited or withdrew funds from that investment account throughout his second marriage. Instead he contemporaneously consumed the VA benefits that he received during his second marriage.

Upon divorce from his second marriage, the trial court considered whether the increase in value of his investment account, funded with his premarital VA benefits, was subject to equitable distribution. Husband cited Section 3501(a)(6) and a federal law that exempts VA disability benefits from attachment or garnishment. Husband also cited a U.S. Supreme Court precedent, Porter v. Aetna Casualty & Surety Co., 370 U.S. 159 (1962), which established a three-pronged test for sheltering a veteran’s accumulated disability benefits in an account. In Porter, the U.S. Supreme Court held that VA benefits saved in a checking account would retain their exempt character provided that: (a) they were readily available as needed for support and maintenance; (b) they actually retained the qualities of moneys, and (c) they had not been converted into permanent investments.

The Superior Court in Goodemote held that the husband’s investment account did not meet the third prong of the test. Because the VA benefits had been invested in securities, mutual funds, and annuities, and were described by husband as his “retirement account,” they were converted into permanent investments, thereby losing their exempt status. The increase in value, which exceeded the initial value of the account at the date of marriage, was subject to equitable distribution. The trial court’s decision was affirmed.

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