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Arizona Community Property Laws | Hildebrand Law, PC

How Are Retirement Accounts Divided in an Arizona Divorce

How Are Retirement Accounts Divided in an Arizona Divorce.

Division of Retirement Accounts in an Arizona Divorce

Many people going through a divorce in Arizona ask how are retirement accounts divided in an Arizona Divorce.

Let’s start our discussion with the Arizona Supreme Court case of Van Loan v. Van Loan.

The Arizona Supreme Court in the Van Loan v. Van Loan case had to answer the question of whether an unvested pension constituted community property in Arizona.

The court concluded that retirement assets, including pensions, are treated in the same manner as all other community property in Arizona and are, therefore, divided between spouses in a divorce.

The court will apportion the community property interest in retirement accounts between the spouses and will award each spouse his or her separate property portion of those retirement accounts.

How to Calculate the Community Property Interest in a Retirement Account During a Divorce in Arizona

There are several ways to determine the community and separate property interests in a retirement account.

The approach used depends on the type of retirement account to be divided.

Retirement accounts are either a “defined contribution” plan or a “defined benefit” plan.

A defined contribution retirement plan is a plan where you invest money that grows over time, like an IRA or 401(k).

You are only entitled to the value of the account.

A defined benefit plan is a plan where you may or may not invest money into the plan and you will receive a monthly amount at a certain age, like a pension.

You may or may not be entitled to the value of the account in lieu of or in addition to monthly pension payments; depending upon the plan.

The Arizona Supreme Court in the Johnson v. Johnson case presented an excellent analysis of how retirement accounts are divided in a divorce in Arizona.

Specifically, the Arizona Supreme Court in the Johnson v. Johnson case established the ways the court may determine the community and separate property interests in these types of retirement accounts.

The actual division of the accounts occurs by rolling out an amount into a separate retirement account for the spouse receiving an interest in the retirement account.

Alternatively, you can offset that spouse’s interest in the other spouse’s retirement account by awarding him or her more of other community property.

If you are splitting a retirement account, you may need to prepare a special Order referred to as a Qualified Domestic Relations Order, which is an Order that directs the plan administrator as to how to divide the community property portion of the retirement account.

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Division of Military Retirement in Arizona

Military Retirement Pay may also be divided in an Arizona divorce. However, special circumstances exist in certain cases of military benefits, such as Combat-Related Special Compensation payments and other forms of military disability payments that may not be divided in an Arizona divorce.

However, the Arizona Supreme Court in the unpublished Merrill v. Merrill case held that a trial court might order a spouse to compensate his or her spouse if the court previously awarded the division of Military Retirement Pay that is subsequently turned into Combat-Related Special Compensation.

Since Merrill is an unpublished case, you are not permitted in almost all cases to cite the case as authority to the court.

Using Community to Purchase Years of Service Credit

Dividing Retirement Accounts in a Divorce in Arizona.

The Arizona Court of Appeals in the published case of Stock vs. Stock had to determine if using community funds to purchase credit for time the husband served in the military before the parties were married transformed those years of service from the husband’s sole and separate property into community property.

The trial court concluded that the use of community funds to purchase retirement credit for time the husband served in the military before the parties were married transformed those years of credit into community property to be divided in in the divorce. The Court of Appeals disagreed.

The Arizona Court of Appeals held that Arizona Revised Statute Section 25-213 provides that property acquired during marriage is community property while property owned or acquired before marriage is separate property.

Property acquires its status as community property or separate property by the marital status of the person acquiring the right to title to the asset, such that property rights acquired by a single person are that person’s separate property and property acquired by a married person is community property.

Citing the prior court of appeals’ case in the matter of Potthoff vs. Potthoff, the court added the time of acquisition of the property means the time a person obtains the “right to title” to the asset and not when the legal title is subsequently obtained.

For example, if a person bought a home the day before he or she got married, but did not close on the sale of that home until the day after he or she was married, that asset would be that spouse’s separate property.

The community does not turn that separate asset into community property simply by spending community property on that separate property asset, including a retirement account or military pension.

As a result, the spouses in the Stock case did not convert the husband’s pre-marriage years of service in the military into community property simply by using community funds to buy back pre-marriage years of military service.

However, the Court of Appeals also found that the community was entitled to a community lien against the separate portion of the husband’s military retirement pension for the amount of community funds spent purchasing the husband’s sole and separate portion of his pension, plus interest.

If you need information about how a retirement account is divided in Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property attorneys have over 100 years 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.

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 Arizona community property case around today.

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Arizona Community Property Laws | Hildebrand Law, PC