BOULTER VS. BOULTER (DIVORCE PROPERTY & ALIMONY)

Key holdings

Practitioner summary

The Nevada Supreme Court held that a divorce decree provision equalizing the parties' Social Security benefits is unenforceable under the federal Social Security Act's anti-assignment clause, 42 U.S.C. Section 407(a), which imposes 'a broad bar against the use of any legal process to reach all social security benefits.' Philpott v. Essex County Welfare Bd., 409 U.S. 413, 417 (1973). Under the Supremacy Clause, conflicting state action is preempted; because the district court merged the benefit-equalizing property settlement agreement into the divorce decree, the decree constituted preempted state action, and neither the district court nor the supreme court could enforce paragraph 4(E). The court aligned Nevada with numerous jurisdictions holding Social Security immune from state-court division upon divorce (e.g., In re Marriage of Hawkins, 513 N.E.2d 143, 147 (Ill. App. Ct. 1987); Olson v. Olson, 445 N.W.2d 1, 11 (N.D. 1989)). The court further held that although recipients may use benefits after receipt to satisfy pre-existing obligations, they may not contract to transfer unpaid future benefits; Section 407(a) precludes transfer of benefits prior to receipt. Thus the parties' agreement to split future benefits was an invalid attempted transfer of the right to those benefits. The court held voluntariness irrelevant, adopting the reasoning that the anti-assignment prohibition applies to voluntary as well as involuntary transfers. Ellender v. Schweiker, 575 F. Supp. 590, 599 (S.D.N.Y. 1983). Finally, even if benefits were received and deposited, a court could not compel their payment, because a bank account containing Social Security funds is exempt from legal process. Hatfield v. Cristopher, 841 S.W.2d 761, 767 (Mo. App. Ct. 1992); see also Philpott, 409 U.S. at 417. Because the contested paragraph was neither enforceable nor properly incorporated into the decree, the court did not reach Ronald's interpretation argument, and the prevailing-party attorney's fee award necessarily fell with the reversal.

In plain language

Ronald and Noleen Boulter divorced after a 37-year marriage. Their property settlement agreement, which the divorce decree merged in, contained a paragraph (4E) saying the parties would 'equalize' their Social Security benefits: once each began receiving Social Security, each would pay the other half of what they received, with the checks direct-deposited and the other spouse's share automatically transferred. When Ronald turned 65, he refused to apply for Social Security or to pay Noleen the equivalent of half his benefits. Noleen asked the court to enforce paragraph 4E and to award her attorney's fees under the agreement. Ronald argued that federal law bars dividing Social Security benefits in a divorce. The district court sided with Noleen, enforced the paragraph, and awarded her fees. Ronald appealed. The Nevada Supreme Court reversed. It explained that a federal statute (42 U.S.C. Section 407(a)) broadly protects Social Security benefits from being transferred, assigned, or reached by legal process, and that under the Constitution's Supremacy Clause this federal law overrides conflicting state action. Because the district court had merged the benefit-splitting agreement into the divorce decree and was being asked to enforce it, that was state action preempted by federal law. The court also held that spouses cannot validly contract to transfer their unpaid, future Social Security benefits, so the agreement to split future benefits was invalid and unenforceable by any court. Even benefits already received and deposited in a bank account remain exempt from legal process, so a court could not compel Ronald to hand over half after receipt either. The fact that the parties agreed voluntarily did not matter, because the statute bars voluntary as well as involuntary transfers. The court reversed the order enforcing paragraph 4E, vacated the attorney's fee award, and sent the case back for the district court to reconsider the overall property distribution and the fee question.