Pensions and Divorce in Arizona

If you are going through a divorce and one of the spouses has a pension, you may be wondering when and how you will receive your community property share of that pension and even how your interest in that pension will be calculated. Pensions and divorce in Arizona present many complicated issues.

A 401(k) or IRA are easier to divide because you will know the exact value of those retirement accounts and can calculate the community property portion of those accounts. Either a special order is issued by the court directing the company managing the retirement account to move a portion of the retirement account into a separate retirement account in the spouse’s name or the plan administrator may be able to simply do a rollover whereby the amount is rolled out of the existing account into a new retirement account.

Pensions, however, are different than a traditional 401(k) or IRA. A pension provides the recipient to receive a series of monthly payments for either a fixed period of time or during the life of the employee after reaching a certain age.

When dealing with pensions and divorce in Arizona you should know that many pensions also have what is referred to as a Survivor Benefit Election, which decreases the amount of the pension payments, but guarantees the non-employee spouse will continue to receive the pension benefit even after the employee spouse dies. The employee spouse in a divorce, typically, does not want to be forced into choosing what will soon be his or her former spouse because it decreases the total overall pension payment. The non-employee spouse typically wants the Survivor Benefit Election to ensure his or her share of the pension does not automatically terminate upon the death of his or her soon to be former spouse.


Pensions and Divorce in Arizona | Boncoskey v. Boncoskey

The Arizona Court of Appeals in the Boncoskey v. Boncoskey case provides valuable insight into how trial court’s are required to divide pensions in an Arizona divorce case. The court distinguished between vested (a.k.a. matured) rights and non-vested pension rights, A pension is matured if the person is presently entitled to retire and begin receiving pension payment. A pension is unvested if the person is not presently entitled to a pension, but may be entitled to pension payments in the future.

Timothy and Laura Boncoskey went through a divorce in Arizona. Timothy accumulated some time in his employers pension system, but he had not yet worked enough years to be entitled to retire or receive pension payments.

Timothy and Laura reached an resolving almost all of the issues in their case. The disagreed, however, on how the special order needed to divide Timothy’s pension should be worded. The court ultimately concluded, over Timothy’s objections, that Timothy would have to make payments to Laura when first becomes eligible to retire even if Timothy continues to work past that age and is not, therefore, actually receiving pension payments. Those payments were deemed to be spousal maintenance and would end when Timothy retires at which time each spouse would receive their community property share of the total pension. The court also ordered Timothy to choose the Survivor Benefit Election over Timothy’s objection.

Timothy appealed the trial court’s orders. The Arizona Court of Appeals found the trial judge made several errors and reversed the trial court.


Pensions and Divorce in Arizona | The Ruling

The analysis from the Arizona Court of Appeals started by addressing Laura’s argument Timothy did not file his Notice of Appeal in time; alleging Timothy had to file a Notice of Appeal within thirty days from the date their Divorce Decree was entered and not after the Domestic Relations Order was subsequently signed by the judge. A party is required to file a Notice of Appeal within thirty days a final appealable order was issued by the trial court. The Arizona Court of Appeals found the Domestic Relations Order issued after the Decree of Dissolution of Marriage was issued was the final appealable Order issued by the trial court and, therefore, concluded Timothy’s time to file his Notice of Appeal began to run with the Domestic Relations Order was issued.

The Court of Appeals referred to a prior Arizona Supreme Court case of Van Loan v. Van Loan, which held that a pension that is not vested and, therefore, may not necessarily result in a spouse receiving pension payments, such as if they leave employment before becoming vested in the pension plan, still constitutes community property and is subject to division in a divorce of the potential right to receive those payments.

The next question the court of appeals addressed was whether Laura had a right to receive the equivalent of what her pension payments would be when Timothy first becomes eligible to receive pension payments, but he elects to continue working; thereby delaying either spouse from receiving pension payments for many years into the future.

The court made an important distinction on this point. Specifically, the court distinguished between spouses going through a divorce when one of the spouse’s has already vested in his or her pension and, therefore, has an immediate right to receive pension payments but chooses to delay retirement from spouses going through a divorce and the vesting of one of the spouse’s pension will not occur for years to come.

In the first case, the Arizona Court of Appeals reaffirmed the Arizona Supreme Court’s ruling in the prior Koelsch v. Koelsch case. In Koelsch, the Arizona Supreme Court faced a situation wherein one of the spouses was fully vested and eligible to receive pension payments at or about the same time the parties were getting divorced. In Koelsch, the Arizona Supreme Court concluded the court had no authority to order that spouse to retire, but did indicate the court could order that spouse to begin making monthly payments in the same amount she would have received from the pension if her spouse retired.

The Arizona Court of Appeals in Boncoskey, however, distinguished that case from the case at hand because the spouse was not vested at or about the time the parties were divorced. The Arizona Court of Appeals in Boncoskey held that in such a situation the trial court cannot order a spouse to begin making payments to the other spouse when they become eligible to retire if he or she continues working. In such a case, the other spouse simply has to wait until the other spouse chooses to retire to receive her or her share of the pension.

The Arizona Court of Appeals affirmed the prior Arizona Supreme Court ruling in Johnson v. Johnson that held the preferred method for dividing the community property interest is to perform a present value of the expected stream of income and order the spouse who will be eligible to receive the pension to pay the other spouse in a lump sum payment for his or her interest in the pension and then award 100% of the pension to the employee spouse. That solution was not available in this case, because the parties had already equally divided all of their other community assets.

The Arizona Court of Appeals, therefore, deferred to use of the “reserved jurisdiction” method announced in the Johnson case wherein you divide the total number of months the employee works for the company by the number of years the parties were married during those years to determine the community property interest in a pension in an Arizona divorce case. The justices also said a trial court has no authority to order a spouse to begin making payments to the other spouse simply because he or she continues working and, therefore, delays both parties’ community share of the pension.

The court of appeals also rejected the trial court’s decision to order Timothy to begin paying Laura for the payments she would have received if Timothy retired when he was first eligible to retire. The trial court’s decision was overturned because, although a court is not bound by the terms of the parties settlement agreement, the court is required to hold an evidentiary hearing before issuing orders changing the terms of the parties’ written settlement agreement.

Lastly, the Arizona Court of Appeals rejected the trial court’s order requiring Timothy to choose the Survivor Benefit election for Laura’s benefit because there is no authority granting the trial court to issue such an order, it would entitle Laura to receive the additional pension benefits Husband would accumulate in the future, and it would prevent Timothy from making such an election for the benefit of any future wife he may marry.

The take away from this case is that dividing pensions can be very complicated. The attorneys at Hildebrand Law, PC are very familiar with working with actuaries and experts to conduct present value calculations on pensions, as well as understanding the many complicated aspects of dividing a pension in an Arizona divorce. Call us today if you have questions regarding dividing a pension in an Arizona divorce.