We are aware the US Treas/VA benefits are not subject to lein or garnishment. However, can we offset an account with these funds in it to clear the account of a co-owner?

IMHO - it's untested. Although there is case law (in some jurisdictions) that would appear to allow offsets to clear overdrafts of the payee of the gov't benefit check, whether or not this extends to an account where multiple people are jointly and severally liable, is as far as I know, untested.