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Dividing Paid Time Off in a Divorce in Arizona

Mon 20th Dec, 2021 Arizona Community Property Laws

Many employers offer employees various forms of paid time off. Many employees receive paid vacation time, paid sick leave, paid holiday pay, and other forms of “paid time off” (i.e., PTO). Some forms of PTO are lost if not used by the employee in the time allowed by the employer while some forms of PTO “rollover” and accumulate over the employees years of service.

Still yet, some forms of “rollover” PTO may be cashed in at some point in the future while other PTO is lost upon the end of the employment relationship.

Paid time off in a “rollover” type plan can be worth quite a bit of money. So, the question is whether a judge can divide paid time off in an Arizona divorce.

The answer to that all important question hinges on a couple facts relating to the employers paid time off plan. Fortunately, the Arizona Court of Appeals answered these questions in the published case of Andrews vs. Andrews.

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Reimbursable Versus Not Reimbursable Paid Time Off

The Court of Appeals ruled that if the accumulated paid time off is reimbursable, it is community property and should be divided. Whereas, if the accumulated paid time off is not reimbursable, it is the separate property of the spouse who earned it and it should not be divided in a divorce.

The Court of Appeals, citing the case of Koelsch vs. Koelsch, noted that property earned by either spouse’s employment is community property in Arizona.

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That rule applies even if the payment for that benefit is made after the community ends, such as in the case of a divorce or legal separation.

The Court of Appeals noted that paid time off may be a form of deferred compensation, similar to a pension, and therefore may be community property.

The Court of Appeals looked to appellate decisions from other states to decide whether paid time off can be a form of deferred compensation, since there was no such ruling on the issue in Arizona.

One such opinion was from the California appellate court holding vacation time is community property if it can be cashed in upon retirement. Another Colorado appellate court held accrued leave is community property if the employee has an enforceable right to be paid for the accumulated paid time off.

The Arizona Court of Appeals held the classification of paid time off as community property or a spouse’s separate property depends upon whether the paid leave is an alternative form of a wage or, instead, a form of deferred compensation for the work the employee already performed.

Paid leave earned as a form of a wage in the future will be that spouse’s sole and separate property and will not be divided in the divorce.

Paid leave earned as a form of compensation for work the employee performed during the marriage is community property and the value of that compensation will be divided between the spouses in the divorce.

The bottom line to the question of whether paid time off, such as paid vacation time, paid sick leave, paid holiday time, or just regular PTO, is divided in a divorce in Arizona depends entirely upon whether the spouse can “cash in” that paid time off or not. If the spouse can “cash in” the paid time off in the future, it is community property, if earned during the marriage, and the value of that paid time off is divisible in an Arizona divorce.

If the paid time off cannot be cashed in, the accumulated paid time off is viewed as a replacement for future wages and becomes the separate property of that spouse. As a result, that future employment benefit is not divisible in an Arizona divorce.

If you have questions about dividing paid time off in Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have over 100 years of combined experience successfully representing clients in community property and family law cases.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your community property or family law case around today.

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