Thanks folks, much appreciated!
@Murphy,
The flags are GMB Designs.
There are several other extensive threads about the issue, which I read through pretty thoroughly.
You are quite correct, the easiest solution would be to simply glue the flags to the poles and then wait to glue the poles to the bearers after the models are varnished.
I guess for me it's an OCD thing, I like seeing everything put together and do the varnishing last. I don't mind doing a brush on varnish for the command stand models only to avoid getting varnish on the flags.
What I learned from the other threads is that like book pages, greeting cards, and calendars, etc….GMB's flags like most other hobby flags are printed on paper that is coated with some sort of laminate. So in terms of varnish, there's no need to add additional varnish to them since they are already protected for gaming purposes.
I'm guessing that what's happening is that the spray varnish is interacting with the laminate and the two are chemically combining which creates the white frosting and crackling.
So the best thing is to never varnish flags in the first place.
However, ONE safe way to add additional protection for flags, if you want to, to help prevent UV fading, etc. is to use a BRUSH ON GLOSS varnish over the flags first. From what I read from those who have experience doing it, it is then safe to do either a spray matte or a brush on matte varnish over that.
Apparently a brush on varnish doesn't interact with the paper's laminate like an aerosol spray does.
Many things to consider! But for my simply hobby brain, I choose to avoid getting any varnish on the flags at all and then take my chances with fading!