U.S. Supreme Court Finally Resolves Arizona Divorce Cases on Military Retired Pay

by Annette Burns on July 5, 2017

In 2012, I wrote a post here about Merrill v. Merrill, which was then an Arizona Court of Appeals case.   The AZ Court of Appeals, back then, ruled that a payor-Husband who reduced military retired pay  (MRP) payments to his ex-wife by converting some of those payments to combat-related special compensation (CRSC) payments would have to make up the lost payments to her from some other assets.

What a difference a few years makes.   In 2012, the existence of ARS 25-318.01 didn’t help in the  Merrill case, as that statute only prohibited division of disability payments to the ex-spouse.    CRSC payments (covered by Title 10, a different federal statute), are NOT disability pay, so 318.01 didn’t help Mr. Merrill back then.   The Arizona legislature closed this loophole in 2014 by amending 25-318.01 to add that any payments pursuant to Title 10 as well as Title 38 could not be ordered made up to the former spouse.     A payor who converted retired pay to Title 10 CRSC payments (as well as Title 38 disability benefits) now could not be forced to indemnify the ex-spouse for her loss of some portion of her retired pay.

[As an aside:   The Arizona decisions were not ordering the military spouse to divide any part of the disability benefits. That was expressly prohibited by the statute.   But the courts were ordering the military spouse to pay the same amount to the ex-spouse from some other assets or income, not from the disability pay itself.   This was an end-run around the intent of federal law and the Arizona statute which clearly intended that the military spouse would keep 100% of anything called “disability”.]

After the Arizona legislature made this statutory change, and the Court of Appeals was involved in the Merrill’s issues yet again , the Arizona Supreme Court got involved.   In December 2015, the Arizona Supreme Court ruled that because ARS 25-318.01 had been changed after the Merrill’s Decree was entered (that had been entered back in 1993), Mr. Merrill still had to indemnify (pay) his ex-spouse for the reduction in retired pay due to his CRSC payments.   Merrill v. Merrill, Arizona 2015.    In other words, the statutory change applied only to future cases, and couldn’t help Mr. Merrill with his orders that had already been entered.  The Arizona Supreme Court ruled that the ex-spouse’s right to the retired pay had already vested (back in 1993) and those rights could not be taken from her by a later change in the law.

A very similar case, Howell v. Howell, was making its way through the Arizona court system at the same time as Merrill, although Howell involved military disability payments to husband, not CRSC payments.     As in Merrill, the Arizona Supreme Court ruled that ARS 25-318.01 could not be applied to deprive the ex-spouse of her MRP which vested in her prior to the existence of that statute.

Between the Merrill and Howell cases, the Arizona Supreme Court made its opinion clear that ex-spouses would get the full amount of MRP that was contemplated at the time of divorce, no matter what the military spouse did to change the pay to disability later.    The Arizona legislature had made itself similarly (and oppositely) clear that the ex-spouse was not entitled to any portion of MRP that was changed to disability benefits (or CRSC benefits) after the divorce was over.   Some final resolution was needed.

Around the country, about 26 other states agreed with Arizona’s decision:   once MRP was awarded to an ex-spouse, the ex-spouse could count on getting that amount even if a portion of the pay was changed to disability.    Twelve other states went the opposite way and ruled that a change of some portion of retired pay to disability pay would deprive the former spouse of her right to the MRP.  The U.S. Supreme Court had to get involved to resolve the issue.

The U.S. Supreme Court determined earlier this year that the 12 states that had not been permitting any indemnification or payback to the ex-spouse for lost MRP were correct.    The 27 states that had permitted payback to the ex-spouse from other assets, including Arizona, were overruled.  The U.S. Supreme Court rejected the argument that the ex-spouse’s retired pay benefits were “vested”, stating that the original divorce court cannot vest to an ex-spouse something it has no authority to give.  Federal law governs what MRP can and cannot be awarded to a former spouse, and a state court’s ruling can’t override federal law.  This ruling decided the Howell case once and for all, and by extension, sent the Arizona Supreme Court’s Merrill decision back for a final ruling that Mr. Merrill does not have to reimburse his ex-spouse for her losses due to the change from retired pay to CRSC pay.      From a 1993 divorce decree, a final decision emerges just 24 years later.

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