Division of Federal Employees Retirement System (FERS) Benefits in an Arizona Divorce
The Arizona Court of Appeals approved of judge’s order dividing a federal retirement pension in a divorce case in Merkley v. Merkley. The Arizona Court of Appeals decided a former spouse was entitled to a share of the federal pension which was to be valued as of the date of retirement. The valuation would include post-divorce increases in retirement benefits, cost-of-living adjustments to those benefits, and a federal annuity supplement for those benefits.
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.
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. The court’s ruling for the court to reserve jurisdiction over the pension allowed the judge to issue additional orders regarding the pension after the divorce was final.
Husband applied for retirement in 2025, which was more than a decade after the divorce was finalized, Wife then sought entry of a Court Order Acceptable for Processing (COAP)—the federal equivalent of a QDRO (Qualified Domestic Relations Order | QDRO)—to ensure she received her share of the pension benefits. a COAP and/or QDRO are special court orders designed to divide some retirement accounts and pensions in Arizona.
Husband objected to several provisions in Wife’s proposed order, arguing they improperly expanded her share of the Federal Employee Retirement System (FERS) benefits.
Husband challenged three aspects of the superior court’s COAP:
- Valuation of Wife’s share at retirement rather than at the date of divorce.
- 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 the divorce or the date Husband actually 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 of those benefits
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
Husband also 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 Husband’s 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 potential increase in value at retirement.
- Post-divorce increases attributable to the structure of the pension plan, including COLAs, may be shared by the former spouse and divided in an Arizona divorce.
- Federal retirement benefits such as the FERS Annuity Supplement may be divisible in an Arizona divorce when not specifically prohibited by federal law.
Frequently Asked Questions About Division of FERS Benefits in an Arizona Divorce
What happens to a FERS pension in an Arizona divorce?
A Federal Employees Retirement System (FERS) pension earned during a marriage is generally considered community property in Arizona. The portion of the pension accumulated during the marriage may be divided between spouses in a divorce. Arizona courts often use a formula based on the length of the marriage during federal employment to determine each spouse’s share.
Can a former spouse receive part of a federal employee’s FERS retirement benefits?
Yes. A former spouse may receive a portion of a federal employee’s FERS retirement benefits if the benefits were earned during the marriage. A court order known as a Court Order Acceptable for Processing (COAP) is typically required to direct the Office of Personnel Management (OPM) to pay the former spouse’s share.
How are FERS benefits divided in an Arizona divorce?
Arizona courts can use several methods to divide FERS benefits including the “reserved jurisdiction method” to divide an unmatured FERS pension. Under this approach, the court calculates the former spouse’s share when the employee retires, using a time formula that compares the years of service during the marriage to the employee’s total years of service.
Is a FERS pension valued at the date of divorce or retirement?
In some Arizona divorce cases involving an unmatured FERS pension, the pension is valued at retirement rather than at the date of divorce. This allows the former spouse to share in the pension’s growth that results from the retirement plan’s structure and maturation.
Does a former spouse receive post-divorce increases in FERS benefits?
Yes. Arizona courts may allow a former spouse to share in certain post-divorce increases in FERS benefits when those increases are part of the pension’s normal operation. This can include benefit increases that occur between the divorce and the employee’s retirement.
Are FERS cost-of-living adjustments (COLAs) divisible in a divorce?
Yes. Cost-of-living adjustments (COLAs) associated with a FERS pension are generally considered part of the retirement benefit itself. Arizona courts have held that a former spouse may receive a proportional share of COLAs applied after the divorce.
What is a Court Order Acceptable for Processing (COAP)?
A Court Order Acceptable for Processing (COAP) is a legal order used to divide federal retirement benefits in a divorce. It functions similarly to a Qualified Domestic Relations Order (QDRO) used for many private retirement plans and instructs the federal government on how retirement benefits should be distributed.
Is a COAP the same as a QDRO?
Not exactly. A COAP serves a similar purpose to a QDRO, but it is specifically used for federal retirement plans such as FERS. Private-sector retirement plans generally use QDROs, state pension plans generally require a DRO, while federal retirement systems require a COAP.
Can the FERS annuity supplement be divided in an Arizona divorce?
Yes. Arizona courts have determined that the FERS annuity supplement may be divisible in a divorce. Because the supplement is created under federal retirement laws rather than Social Security laws, it can be included in the division of FERS benefits when authorized by a court order.
Is the FERS annuity supplement considered Social Security?
No. Although the FERS annuity supplement is designed to provide income before Social Security eligibility begins, it is not a Social Security benefit. Courts have distinguished the supplement from Social Security and have allowed it to be divided as part of a FERS pension.
Can Social Security benefits be divided in an Arizona divorce?
Social Security benefits cannot be divided by state courts in a divorce because federal law protects those benefits from division. However, this restriction does not automatically apply to FERS pension benefits or the FERS annuity supplement.
What is the reserved jurisdiction method for dividing pensions?
The reserved jurisdiction method allows a court to postpone the final division of a pension until the employee spouse retires. This approach is often used when retirement benefits have not yet matured at the time of divorce and helps ensure that both spouses receive their proper share of the pension.
How does Arizona calculate the community property portion of a FERS pension?
Arizona courts typically use a time-rule formula. The formula compares the years of federal employment during the marriage with the employee’s total years of service at retirement. The resulting percentage determines the community interest subject to division.
What happens if a federal employee retires years after the divorce?
If a federal employee retires years after the divorce, the former spouse may still be entitled to a share of the retirement benefits if the divorce decree awarded an interest in the pension. A COAP may be entered after retirement to implement the division ordered in the divorce decree.
Can a divorce decree reserve jurisdiction over a FERS pension?
Yes. Arizona courts can reserve jurisdiction over a FERS pension when the employee has not yet retired. This allows the court to enter future orders and properly divide retirement benefits when they become payable.
Are federal retirement benefits community property in Arizona?
The portion of federal retirement benefits earned during the marriage is generally considered community property under Arizona law. Benefits earned before marriage or after service of a divorce petition are typically treated as the separate property of the spouse who earned those benefits.
Why is legal guidance important when dividing FERS benefits?
Dividing federal retirement benefits can be complex because federal laws, Arizona community property laws, pension valuation rules, and COAP requirements must all be considered. Proper drafting of court orders is often critical to protecting each spouse’s rights and ensuring the benefits are divided correctly.
If you need information about dividing Federal Employee Retirement System or Annuity Supplement benefits in a divorce in Arizona, you should contact the attorneys at Hildebrand Law, PC. Our Arizona divorce attorneys have decades of combined experience successfully representing clients in divorce cases in Arizona.
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.
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