APPEAL from the Circuit Court of Cook County; the Hon. LOUIS
J. HYDE, Judge, presiding.
JUSTICE MCGILLICUDDY DELIVERED THE OPINION OF THE COURT:
Rehearing denied August 11, 1982.
This appeal is taken from the judgment of dissolution of the marriage of Janina Hapaniewski, the petitioner, and Stanislaw Jan Hapaniewski, the respondent. The sole issue on appeal is whether the trial court erred in dividing the property of the parties.
The petitioner and respondent were married on February 16, 1966. Four children, ranging in age from 6 to 12 years at the time of trial, were born to the parties during the marriage. Neither the petitioner, who was 32 years of age, nor the respondent, who was 44 years of age and a disabled American veteran, were employed. The parties acquired two pieces of real property during the marriage — rental property, located in Chicago, and a single-family residence, located in Summit, Illinois. Legal title to both properties was held by the petitioner and respondent in joint tenancy, and both buildings were encumbered by a combined mortgage having a balance of $39,173.20. The monthly mortgage payment was $372.
At trial, the respondent was called as an adverse witness. He testified that the Chicago property was acquired in June 1968 at a price of $19,500 while he was employed and before he received Veterans' Administration benefits. Mortgage insurance on the $16,500 mortgage was obtained; and when the respondent was declared disabled in 1970, proceeds from that policy reduced the mortgage to about $3,500. The respondent stated that the remaining mortgage was paid with his veterans' benefits. He further stated that the down payment on the Chicago property was $3,000 and that he accumulated that money by cashing in two life insurance policies and some bonds that he had purchased during his marriage. He denied that he saved $1,000 and had borrowed $2,000 from relatives. The Summit property was acquired at a purchase price of $39,000 or $40,000.
The respondent further testified that he was receiving Veterans' Administration benefits of $973 per month but that his benefits were to be reduced to $924 per month. *fn1 He also received $410 a month from the Social Security Administration and $195 per month in rental income from the rental of two of the four apartments on the Chicago property. The respondent lived in the third apartment and had collected rent of $95 per month for the fourth apartment until the tenants vacated that apartment the previous month. The respondent testified that the mortgage payments were in arrears for three months. He stated that during this three-month period he had spent his income on his children during his visitation with them and that he spent about $200 a week on food, $17 a month on water bills, $10 or $20 a month for electricity and was due to make a car insurance payment of $43. The respondent also testified that he owed $1,600 to his sister; $75 to his brother; $2,900 on a charge card; and $66 for a telephone bill.
The petitioner testified that the $3,000 down payment on the Chicago property was made with $1,000 from the respondent's savings and $2,000 that he had borrowed. She did not know whether her husband had a life insurance policy when the Chicago building was purchased and stated that the respondent did not own stocks or bonds at that time. The petitioner further testified that during her marriage to the respondent, the family's weekly food bill was $80 to $85. She stated that her outstanding bills amounted to $71 for gas, $16 to $20 for electricity, and $563 for hospital and doctor's services for her son. The petitioner's only income was $467 a month from the Social Security Administration for her children and $30 per week from her brother who was living with her.
Based upon the testimony presented at trial, the court awarded the petitioner custody of the four children and both parcels of real estate which he valued at approximately $91,000 and determined the equity to be between $50,000 to $55,000. The petitioner and the respondent were barred from maintenance, and the court reserved ruling on child support. The parties were awarded the furniture in their possession and were ordered to pay equally the mortgage arrearages.
The respondent contends that the award of both parcels of real estate to the petitioner was error because it violated Federal and State law. He argues that under Federal law, military benefits are non-marital property and should not be considered in the division of marital property. It is the respondent's position that the trial court violated this law by awarding the petitioner both pieces of real estate as an offset to his Veterans' Administration benefits. The respondent also contends that under Illinois law both pieces of property were his non-marital property as they were acquired with his military benefits.
The first issue we must deal with is whether the respondent's military disability benefits are marital property. The petitioner contends that in accordance with In re Marriage of Smith (1980), 84 Ill. App.3d 446, 405 N.E.2d 884, the respondent's disability benefits were marital property because they were acquired during the marriage and because they did not meet any statutory exceptions set forth in section 503(a) of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1979, ch. 40, par. 503(a)).
Smith is not conclusive as to the issue raised herein since Smith was concerned with a nonmilitary disability pension which was not created by Federal law. We believe that Federal law has preempted all State law on the subject of whether military benefits are marital or community property. In McCarty v. McCarty (1981), 453 U.S. 210, 69 L.Ed.2d 589, 101 S.Ct. 2728, the United States Supreme Court held that Federal law precludes a State court from dividing military non-disability retirement pay pursuant to State community or marital property laws. In reaching such a conclusion, the court examined the applicable Federal statutes and determined that the military retirement benefits in question were "`a personal entitlement payable to the retired [military] member himself as long as he lives.'" 453 U.S. 210, 224, 69 L.Ed.2d 589, 601, 101 S.Ct. 2728, 2737 (quoting from S. Rep. No. 1480, 90th Cong., 2d Sess. 6 (1968)).
• 1 An examination of the legislative scheme applicable in the instant case leads to a similar conclusion with regard to a veteran's disability benefits. Such benefits also are payable to the veteran (see, e.g., 38 U.S.C. § 310, 314, 315, 331, 334 (1976 & Supp. III 1979)); *fn2 and, as with military retirement pay, military disability payments cannot be attached or assigned (see 37 U.S.C. § 701(c) (1976); 38 U.S.C. § 3101(a) (1976); cf. 42 U.S.C. § 659 (Supp. III 1979) (Federal benefits may be subject to legal process to enforce child support or alimony obligations)). Further support for such a conclusion is found in the legislative history of the veterans' disability compensation program. The basic purpose of that program is to provide relief from the impaired earning capacity of veterans disabled as the result of their military service. (H.R. Rep. No. 96-1155, July 2, 1980, 1980 U.S. Code Cong. & Ad. News 3307, 3310 (hereinafter cited as H.R. Rep. No. 96-1155); see State ex rel. Eastern State Hospital v. Beard (Okla. 1979), 600 P.2d 324.) In furtherance of this purpose and to ensure the purchasing power of the disabled veteran, Congress historically has increased the compensation rates whenever there has been an appreciable increase in the cost-of-living index. (H.R. Rep. No. 96-1155, at 3311, 3316.) We believe that the classification of a veteran's disability benefits as marital property would diminish the benefits that Congress has said should go to the veteran and would cause an injury to Federal interests which is forbidden by the supremacy clause of the Federal Constitution (U.S. Const., art. VI, cl. 2). (See McCarty v. McCarty; Hisquierdo v. Hisquierdo (1979), 439 U.S. 572, 59 L.Ed.2d 1, 99 S.Ct. 802.) Thus, we hold that the respondent's veterans' disability benefits are his non-marital assets.
It is clear from the record in the case at bar that the trial court did not find the respondent's military disability benefits to be marital property. The respondent contends, however, that the trial court attempted to overcome the prohibition against treating his benefits as marital property by awarding the petitioner both parcels of property to offset his cash benefits. The respondent argues that a similar division of property was rejected by the Supreme Court in Hisquierdo v. Hisquierdo wherein the court held that retirement benefits under the Federal Railroad Retirement Act of 1974 (45 U.S.C. § 231 et seq. (Supp. IV 1974)) were not community property and that Federal law would have been violated if the employee's spouse was awarded a portion of those benefits or if the employee's spouse was awarded other community property to offset his or her interest in those benefits.
We believe that the respondent's reliance on Hisquierdo is misplaced since the offset argument therein was premised on the assumption that the railroad retirement benefits were community property. In the case at bar, the respondent's disability benefits were not classified as marital property, and the court did not award the real estate ...