Another Arizona Ct. of Appeals Decision on Military Benefits

by Annette Burns on September 25, 2012

Reported family law cases haven’t topped the list of opinions from the Arizona Court of Appeals in 2012.   Here’s a synopsis of one of the only three reported family cases thus far this year.

Merrill v. Merrill (8-9-2012)   Issue:   May a military retiree who chooses to waive retirement benefits in favor of CRSC benefits be required to make his former spouse whole, to the extent the former spouse’s share of the military retirement is reduced by his election, even though their dissolution decree does not expressly prohibit such a waiver and even though it lacks an express indemnity provision?

HELD:  The military retiree must make his former spouse whole to the extent his unilateral decision to receive the tax benefit has reduced her share of his retirement benefits.

Issue:   Does Arizona Revised section 25-318.01 prohibit relief to the former spouse under these circumstances?

The Husband’s election to receive CRSC benefits (combat-related special compensation, which reduces his retirement benefit dollar-for-dollar in exchange for tax-free payments) reduced Wife’s share of his retirement to almost nothing.   Her share was reduced from $1116/ mo. to $133/ mo. as the result of Husband’s election.    The Court of Appeals likened this to its decision in Gaddis, where the military spouse elected to waive military retirement in favor of his civil service pay, which also reduced the former spouse’s retirement share.      “An employee spouse may not defeat the former spouse’s interest in retirement by invoking a condition wholly within his control.”

The Decree had granted Wife granted Wife “fifty percent (50%) of the amount paid to [Husband] as retired pay . . . “    The Court interpreted this language to  “comprehensively reference all amounts to which the retiree would ordinarily be entitled as a result of retirement from the military.”    And, this language was earlier referenced to mean all retirement benefits Husband was entitled to, before any waivers necessary to receive disability benefits, citing an Indiana case, Bandini.

The application of Arizona’s 25-318.01 was at issue in this case.  It states:

In making a disposition of property pursuant to § 25-318 or 25-327, a court shall not do any of the following:

1. Consider any federal disability benefits awarded to a veteran for service-connected disabilities pursuant to 38 United States Code chapter 11.

2. Indemnify the veteran’s spouse or former spouse for any prejudgment or postjudgment waiver or reduction in military retirement or retainer pay related to receipt of the disability benefits.

3. Award any other income or property of the veteran to the veteran’s spouse or former spouse for any prejudgment or postjudgment waiver or reduction in military retirement or retainer pay related to receipt of the disability benefits.

The Court found this statute inapplicable in this case.     Finding first that this statute could be applicable in a post-decree proceeding such as this one (because of the language “postjudgment” in Subsection 3), the Court went on to find it inapplicable as the statute refers only to “disability benefits”.  This case involved combat-related special compensation, and CRSC is not embodied in Title 38 of the Federal Code.    Citing Priessman, which also involved CRSC payments, the distinction between CRSC and disability benefits was crucial, and ARS 25-318.01 applies exclusively to benefits embodied in Title 38 and therefore has no application to Title 10 CRSC payments.

The Court then clarified that it was not ordering Husband to divide his CRSC payments, which is prohibited by Title 38.  Husband was ordered to make Wife whole from “any other available assets” and the case was remanded to determine his ability to pay Wife from other assets.      The Court doesn’t explicitly state what will happen if on remand the trial court finds that Husband has no other assets with which to pay Wife, but the implication is that if he does not, Wife is out of luck.    A footnote notes that the trial court already made a finding that Husband had no other assets, but the Court of Appeals didn’t seem to buy that.    “Although the superior court did not directly address this issue, its finding that  ‘Husband has no other income other than his disability benefits’ is not supported by the record, which demonstrates that he receives some non-military pension benefits.”        As the Court’s minute entry which originally denied Wife’s petition mentions Husband’s “McDonnell Douglas retirement benefits”, the existence of other assets would appear to be the case.

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