Gentry v. Gentry

Horace D. GENTRY v. Athanett O. GENTRY

96-1063                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered February 10, 1997


1.   Constitutional law -- Supremacy Clause -- state action may be
     preempted by a conflicting federal law. -- It is generally
     agreed that, under the Supremacy Clause, any state action is
     preempted by a conflicting federal law. 

2.   Divorce -- courts without power to enforce private agreement
     dividing future payments of Social Security -- Social Security
     Act prohibits assignment of future receipt of benefits. --
     State courts are without power to take any action to enforce
     a private agreement dividing future payments of Social
     Security when such an agreement violates the statutory
     prohibition against transfer or assignment of future benefits;
     the Social Security statute itself specifically prohibits
     assignment of "future" receipt of benefits and not those
     benefits already received.  
    
3.   Divorce -- independent property-settlement agreement
     incorporated into divorce decree -- court may not subsequently
     modify agreement. -- Contracts entered into voluntarily must
     be enforced; when parties enter voluntarily into an
     independent property-settlement agreement that is incorporated
     into a decree of divorce, it cannot subsequently be modified
     by the court.

4.   Divorce -- parties may not contract to transfer their unpaid
     Social Security benefits -- agreement between parties
     unenforceable. -- The Social Security Act prohibits access of
     others to Social Security benefits except to provide child
     support or make alimony payments; community-property
     settlements, equitable distribution of property, or other
     division of property between spouses are specifically
     excluded; here, there was no award of alimony; the plain
     language of the agreement clearly provided for a transfer or
     assignment of future benefits prohibited by 42 U.S.C  407(a),
     and therefore paragraph nine was invalid and unenforceable
     when signed; because the parties attempted to transfer their
     rights to future benefits in violation of  407(a), the
     agreement was invalid; the fact that the property-settlement
     agreement was entered into voluntarily by the parties was not
     relevant.


     Appeal from Benton Chancery Court; Donald R. Huffman,
Chancellor; reversed and remanded.
     D. Scott Hickam. for appellant.
     Clark & Clark, by:  Jim Clark, for appellee.

     Ray Thornton, Justice.
     This case presents the issue whether an agreement to divide
future Social Security benefits can be enforced by the courts of
Arkansas notwithstanding the provisions of federal law prohibiting
the transfer or assignment of such benefits.  After twenty-eight
years of marriage, the appellant, Horace D. Gentry, and the
appellee, Athanett O. Gentry, were divorced in 1984.  They entered
into a property settlement which was approved by the court and
which included among its provisions the following paragraph nine:
     In the event that the husband is entitled to Social
     Security payments, the wife shall be entitled and shall
     receive one half of all payments that are made to him.
Mr. Gentry began receiving benefits in September, 1995, and did not
pay Ms. Gentry the agreed one-half of the benefits.  She filed a
Petition for Citation for Contempt because of Mr. Gentry's refusal
to obey the court-ordered property-settlement agreement.  Mr.
Gentry admitted entering into the agreement, but contended that his
Social Security benefits were nonassignable under federal law. 
     The matter was heard in June 1996, and the court ruled the
property-settlement agreement was an enforceable contract; that Mr.
Gentry owed Ms. Gentry $3, 290.00 reflecting her one-half share of
the Social Security benefits already received and that Mr. Gentry
would owe one-half of his future benefits.  
     Mr. Gentry appeals contending that paragraph nine of the
agreement violates 42 U.S.C.  407, and is unenforceable under the
Supremacy Clause of the United States Constitution.  We agree, and
reverse the decision of the chancery court.
     The Social Security Act provides that:
     (a)  The right of any person to any future payment under
     this subchapter shall not be transferable or assignable,
     at law or in equity, and none of the moneys paid or
     payable or rights existing under this subchapter shall be
     subject to execution, levy, attachment, garnishment, or
     other legal process, or to the operation of any
     bankruptcy or insolvency law.
42 U.S.C.A.  407(a) (emphasis added).  The United States Supreme
Court has adopted the position that  407(a) 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).  In a case interpreting a similar prohibition against
assignment of future retirement benefits the Supreme Court stated
that by enacting such anti-assignment statutes, Congress has,
"afforded recipients [protection] from creditors, taxgatherors, and
all those who would anticipate the receipt of benefits". 
Hisquierdo v. Hisquierdo, 439 U.S. 572, 575-576 (1979).
     The United States Supreme Court found in Bennett v. Arkansas,
485 U.S. 395, (1988), that an Arkansas statute was in conflict with
 407 of the Social Security Act, and held that the Supremacy
Clause precluded Arkansas from attaching a prisoner's Social
Security benefits.  Id. at 397.
     The United States Supreme Court in Philpott held that the
provisions of 42 U.S.C.  407 barring the use of "any legal
process" to reach social security benefits" bars all claimants,
including a state.  Philpott, 409 U.S.  at 417.
     It is generally agreed that under the Supremacy Clause, any
state action is preempted by a conflicting federal law.  Kirk v.
Kirk, 577 A.2d 976, 979 (R.I. 1990); see also Swan v. Swan, 720 P.2d 747, 751-52 (Or. 1986) (stating that Congress intended to
preempt state property-division law as applied to Social Security
benefits of a spouse upon a divorce) and Olson v. Olson, 445 N.W.2d 1, 11 (N.D. 1989) (holding that Social Security is immune from
adjustment by state courts in dividing marital property).
     The thrust of these decisions is that state courts are without
power to take any action to enforce a private agreement dividing
future payments of Social Security when such an agreement violates
the statutory prohibition against transfer or assignment of future
benefits.  See also Boulter v. Boulter, No. 97-27228, 1997 WL 4839
(Nev. Jan 3, 1997).
     The Social Security statute itself specifically prohibits
assignment of "future" receipt of benefits, and not those benefits
already received.  Once Social Security benefits are received, they
become the recipient's personal property and he can do whatever he
wishes with them, even use them to pay preexisting obligations. 
United States v. Eggen, 984 F.2d 848, 850 (7th Cir. 1993).  We have
applied that principle in this state when we held that a lump-sum
settlement already received from Social Security is marital
property and is subject to division.  Bagwell v. Bagwell, 282 Ark.
403, 405, 668 S.W.2d 949, 950 (1984).    
     We understand the rationale followed by the chancery court in
holding that contracts entered into voluntarily must be enforced. 
It is well established that when parties enter voluntarily into an
independent property-settlement agreement that is incorporated into
a decree of divorce, it cannot subsequently be modified by the
court.  Law v. Law, 248 Ark. 894, 897, 455 S.W.2d 854, 856 (1970);
Kennedy v. Kennedy, 53 Ark. App. 22, 25, 918 S.W.2d 197, 199
(1996).
     The Court of Appeals in Kennedy found no merit in the
appellee's argument that the payment of alimony after he reached
retirement age violated federal law.  An exception to the  407(a)
provision prohibiting access of others to Social Security benefits
was made in 1975 when 42 U.S.C.  659(a) was enacted.  This
statutory exception to  407 makes benefits subject "to legal
process... to provide child support or make alimony payments," 
Congress specifically excluded from its definition of alimony any
community-property settlement, equitable distribution of property,
or other division of property between spouses.  42 U.S.C.  662(c). 
The Rhode Island Supreme Court observed in Kirk v. Kirk that
federal law has carefully limited a divorced spouse's ability to
reach Social Security benefits, and stated:  "Therefore, these
Social Security benefits may be reached by a former spouse for
alimony or child support but not for property division."  Kirk, 577 A.2d  at 980.
     There is no award of alimony in this case.  The plain language
of paragraph nine makes it clear that "[i]n the event that the
husband is entitled to Social Security payments, the wife shall be
entitled and shall receive. . ." a share of future Social Security
benefits potentially belonging to Mr. Gentry.  This amounts to a
transfer or assignment of future benefits prohibited by  407, and
therefore paragraph nine was invalid and unenforceable when signed. 
As this issue is a matter of first impression in Arkansas, we note
with interest the 1997 decision by the Supreme Court of Nevada
where a similar question was resolved in Boulter v. Boulter.  In a
well-reasoned opinion, that court stated:
     Although social security recipients may use the proceeds
     of their social security, after their receipt, to satisfy
     preexisting obligations, they may not contract to
     transfer their unpaid social security benefits.  Thus, in
     contracting to give Noleen one-half of his benefits
     before he was eligible to receive them, Ronald
     ineffectually "transferred his right" to the benefits. 
     Because Ronald and Noleen attempted to transfer their
     rights to future benefits in violation of 42 U.S.C. 
     407(a), the agreement was invalid and neither this court
     nor the district court may order its enforcement. 
     Moreover, the fact that the property settlement agreement
     is entered into voluntarily by the parties is without
     relevance.
Boulter v. Boulter, 1997 WL at 2.
     We have determined that the attempted future assignment of
one-half of whatever benefits Mr. Gentry might receive from Social
Security was preempted by the provisions of 42 U.S.C.  407(a), and
we hold that the chancery court was without jurisdiction to enforce
an award of one-half of his social security benefits to Ms. Gentry.
     Reversed and remanded.