Case Notes: VA benefits as marital property

Under Pennsylvania law, certain things are exempt from being considered "marital property," and are, therefore, not subject to distribution upon divorce. However, the increase in value of two of these exempt items - property acquired before the marriage and inheritances - is marital. But what about Veteran's Benefits which are placed into an investment account? VA benefits are included in the list of "exempt" assets, and based upon the law, the increase in value would not normally be treated as marital. Does placing it in an investment account make these funds marital?

This exact issue was recently addressed for the very first time by the Pennsylvania Superior Court.

In Goodemote v. Goodemote, 44 A.3rd 74 (Pa. Super. 2012), Husband and Wife married July 13, 1991 and separated October of 2007. Husband was a Vietnam War Vet and had received monthly Veterans' Disability payments since his discharge in 1969. In 1971, Husband deposited these payments into an investment account through 1978. After 1978, he put the VA payments directly into his bank account and never touched the investment account again.

At the time of marriage, the investment account had a value of $74,374.67, and at the time of separation, the account had a value of $158,932.52 resulting in an increase of value of $84,557.85 which Wife contended was marital property.

The PA Superior Court adopted the Supreme Court of the United States' ruling in Porter v. Aetna Casualty Insurety Company, 370 U.S. 159 (1962), which set forth a test to determine whether VA benefits remain exempt after payments. In order to remain a "non-marital" asset, the funds from VA benefits must (1) be readily available for the veteran's support and maintenance, (2) actually retain the qualities of money, and (3) have not been turned into a permanent investment.

Because Husband had transformed the VA benefits into a permanent investment, the increase in value was marital and thus was subject to equitable distribution.

Moral of the story: Evaluating assets and determining what constitutes marital property can be a difficult and complicated process. If you are in the process of getting a divorce, you should consult with an attorney well versed in the law to advise and guide you.