Updates on Retirement Division

Retirement division is often a thorny subject in a divorce proceeding, and it is at its most complicated when a defined benefit plan is in question.  A defined benefit plan is a retirement benefit that does not have a savings account component.  Instead, the benefit is usually determined by the employer after considering factors such as the length of employment and the highest or most recently earned wages of the employee.  A pension is a defined benefit plan.  So is military retirement, Arizona State Retirement System benefits, Public Safety Personnel System benefits, and more.  Defined benefit plans are often the most valuable asset of the marriage, and they are difficult to value.  Even if a financial expert is able to quantify a present day cash value for a defined benefit plan, sometimes there are not enough other assets to be divided for the employee spouse to buy out the other spouse’s interest.  One of the hardest issues to address then becomes how to address the plan division if the employee spouse continues to work after the marriage ends. 

            The seminal case in this area is Koelsch v. Koelsch, which was decided by the Arizona Supreme Court in 1986.  The primary issue addressed in this decision was how to handle a situation where the employee spouse voluntarily decided to continue working past the date when he was eligible to retire, which in turn postponed the date when his former spouse could receive her share of his pension.  The Arizona Supreme Court ruled that the employee spouse did not have the right to deprive his former wife of her property interest in his pension.  The Court required the employee spouse to pay his ex-wife the amount she was entitled to receive from the pension out of his own pocket each month to compensate her for the delay of her receipt of the pension money.

            In the two-plus decades since Koelsch was decided, it has played a significant role for employee spouses in determining when they will retire.  It has also spawned litigation where the non-employee spouse has wanted to recover pension payments that he or she would have been entitled to receive if the employee spouse delays retirement past the eligibility date.

            However, over the past several months we have seen two cases that have pushed back at the Koelsch precedent.  The first is the Barron v. Barron decision out of Division One of the Arizona Court of Appeals.  This case found that 10 U.S.C. §1408 prohibits the courts from requiring a military member to indemnify a former spouse if the servicemember chooses to continue to serve in the military after becoming eligible to retire.  The holding in Barron essentially means that Koelsch no longer applies to military pensions.

            The second decision that has narrowed Koelsch is also from Division One of the Arizona Court of Appeals.  It is called Quijada v. Quijada and was issued in February 2019.  In this decision, the Court found that the non-employee spouse must explicitly reserve the right to pursue Koelsch payments of retirement at the time of the divorce to obtain compensation from the employee spouse if the employee spouse postpones retirement and continues to work.   The Court of Appeals found that if the right to these payments is not reserved, and the non-employee spouse pursues Koelsch payments after entry of the divorce decree, the request for the payments is an impermissible request to modify the property distribution in the divorce decree.

            These two decisions have significantly narrowed the scope of Koelsch v. Koelsch.  It remains to be seen if further changes to the division of defined benefit plans will be forthcoming.

-Erin Fox