The Arizona Court of Appeals affirmed a superior court order dividing a federal retirement pension in the marital dissolution case Merkley v. Merkley, holding that a former spouse was entitled to a share of the pension valued at retirement—including post-divorce increases, cost-of-living adjustments, and a federal annuity supplement.

Post-Decree Increases in Value of FERS Pension an an Arizona Divorce

The dispute arose from the divorce of Husband and Wife, who married in 1995 and divorced in 2012 after Husband filed for dissolution in 2011.

During the marriage, Husband participated in the Federal Employees Retirement System (FERS) beginning in 2002. The divorce decree awarded Wife one-half of the community interest in the pension, covering the period between the start of Husband’s federal employment and the date the dissolution petition was served.

Because Husband had not yet retired at the time of the divorce, the decree reserved the court’s jurisdiction to determine how the pension would ultimately be divided.

More than a decade later, Husband applied for retirement in 2025. Wife sought entry of a Court Order Acceptable for Processing (COAP)—the federal equivalent of a QDRO (Qualified Domestic Relations Order)—to ensure she received her share of the pension benefits.

Husband objected to several provisions in Wife’s proposed order, arguing they improperly expanded her share of the FERS benefits.

Husband challenged three aspects of the superior court’s COAP:

1. Valuation of Wife’s share at retirement rather than at the date of divorce.
2. Division of the FERS annuity supplement, which Husband argued resembled Social Security benefits and therefore could not be divided.

Pension Valuation as of Date of Retirement Not Date of Divorce

The appellate court first addressed whether Wife’s interest should be calculated as of the date of dissolution or at the time Husband retired.

Arizona law allows courts to divide an unmatured pension using the “reserved jurisdiction method,” which calculates each spouse’s share when the employee spouse begins receiving benefits.

Under this approach, courts apply the “time formula,” dividing the years worked during the marriage by the employee’s total years of service to determine the community share.

The court concluded that the decree adopted this method and therefore entitled Wife to a proportional share of the pension based on the value of the benefits at retirement, not the value at divorce.

Because pension benefits often depend on total years of service, the court explained, the community’s interest naturally includes increases attributable to the plan’s structure and maturity.

Dividing Post-Decree Cost of Living Adjustments in a FERS Pension

The court also held that cost-of-living adjustments (COLAs) are an inherent feature of the pension plan. As a result, the cost-of-living-adjustments for the pension granted after the divorce decree was issued were also a divisible part of the FERS pension to which wife was entitled to her share

Division of the FERS Annuity Supplement

Finally, Husband argued that the COAP improperly divided the FERS annuity supplement, which provides payments to certain federal employees who retire before they become eligible for Social Security benefits.

Husband correctly pointed out that federal law prohibits a state court from dividing a spouse’s social security benefits in a divorce. Husband, therefore, claimed the FERS Annuity Supplement effectively substitutes for Social Security and therefore should also be exempt from division in a divorce under federal law.

The Court of Appeals rejected that argument. The court explained that the FERS Annuity Supplement is created under the Federal Employees’ Retirement System Act, not the Social Security Act.

Unlike Social Security benefits—which federal law generally shields from division in divorce—the FERS statute expressly allows pension payments, including the supplement, to be distributed to a former spouse pursuant to a court order.

Because the divorce decree awarded Wife a share of the community interest in Husband’s FERS pension plan, the court concluded that the FERS Annuity Supplement was also properly included within that award.

What This Case Means for Division of a Pension in an Arizona Divorce

The decision underscores several important principles in Arizona family law:

• Courts may divide unmatured pensions using the reserved jurisdiction method, allowing the non-employee spouse to benefit from the pension’s value at retirement.
• Post-divorce increases attributable to the structure of the pension plan, including COLAs, may be shared by the former spouse.
• Federal retirement benefits such as the FERS Annuity Supplement may be divisible in divorce when authorized by statute.

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