If the state is aware of the settlement, they may very well seize it to collect on the arrearages. However, you should consider addressing the matter in a proactive fashion. You can do this by filing a motion with the court that handle the child support issue in the first place.
You could file an emergency motion for enforcement. The motion would detail his arrearages and the VA settlement. The motion would further state that you are in fear that the monies will be spent, hid or whatever to avoid making payment.
If you can get the motion filed quickly, I can say with a high level of confidence that the judge will gladly grant you an order requiring the funds to be frozen to cover the arrearages before disbursing anything to the father.
Please let me know if anything requires clarification.
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