Stock v. Stock ( 2021 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SUSANNE KAY STOCK,
Petitioner/Appellee,
v.
MICHAEL JOSEPH STOCK,
Respondent/Appellant.
No. 1 CA-CV 20-0015 FC
FILED 1-21-2021
Appeal from the Superior Court in Yavapai County
No. P1300DO201800931
The Honorable Cele Hancock, Judge
AFFIRMED IN PART; REVERSED IN PART AND REMANDED
COUNSEL
Popp Law Firm PLC, Tempe
By James S. Osborn Popp
Counsel for Petitioner/Appellee
Raymond S. Dietrich PLC, Phoenix
By Raymond S. Dietrich
Counsel for Respondent/Appellant
STOCK v. STOCK
Opinion of the Court
OPINION
Presiding Judge Samuel A. Thumma delivered the opinion of the Court, in
which Judge D. Steven Williams and Judge David D. Weinzweig joined.
T H U M M A, Judge:
¶1 Michael Joseph Stock (Husband) appeals from the denial of
his motion to alter or amend post-decree orders awarding a portion of his
federal retirement benefits, including for his pre-marriage federal service,
to Susanne Kay Stock (Wife). The community is entitled to reimbursement
for community funds used to purchase a credit for Husband’s pre-marriage
federal service. Wife, in turn, is entitled to receive her portion of that
reimbursement plus interest from the time of purchase. The community,
however, did not acquire an ownership interest in retirement benefits
attributable to Husband’s pre-marriage service. Accordingly, the order
denying Husband’s motion to alter or amend is reversed to the extent that
it addresses Husband’s federal service credit, and this matter is remanded
for further proceedings consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
¶2 During the marriage, the parties increased Husband’s federal
retirement benefits by using community funds to purchase credit for time
Husband served in the military before the marriage. After Wife petitioned
for dissolution, the parties entered into a settlement agreement dividing
community property, which the court incorporated into the decree.
Consistent with that settlement agreement, the decree awarded Wife her
community portion of Husband’s federal retirement benefits.
¶3 Wife later moved for entry of retirement benefit division
orders, lodging proposed orders awarding her 37.09 percent of Husband’s
monthly federal retirement benefits. Wife calculated that percentage by
comparing the months of Husband’s federal service and the months of the
marriage, divided by half to reflect her interest in the community portion
of the benefits. Wife’s calculation included in both time periods the months
of pre-marriage service credit purchased with community funds. Wife’s
proposed orders also directed payment of her share of the retirement
benefits directly to her, and then to her estate if she predeceased Husband.
Husband opposed Wife’s motion and lodged competing orders that would
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Opinion of the Court
award Wife a pro rata share of his gross monthly federal retirement
benefits, excluding the purchased pre-marriage service credit. Husband’s
competing orders also would direct that payment be made to Wife, but not
to her estate. Husband requested that the court enter his proposed orders
or set the matter for an evidentiary hearing.
¶4 The court entered Wife’s proposed orders, stating they were
consistent with the parties’ agreement reflected in the decree. Husband
unsuccessfully moved to alter or amend and for an evidentiary hearing.1
This court has jurisdiction over Husband’s timely appeal of the denial of
that motion pursuant to Article 6, Section 9, of the Arizona Constitution and
Arizona Revised Statutes (A.R.S.) sections 12-120.21(A)(1) and
-2101(A)(1)(2020).2
DISCUSSION
¶5 This court reviews an order denying a motion to alter or
amend for an abuse of discretion. In re the Marriage of McLaughlin, 2 CA-CV
2019-0210, 2020 WL 5887214, at *4 ¶ 17(Ariz. App. 2020). This court reviews
de novo, however, the court’s characterization of community property. In
re Marriage of Foster, 240 Ariz. 99, 101 ¶ 5 (App. 2016).
1Hours after the court entered the orders submitted by Wife, Husband filed
a supplemental response and notice of Social Security offset pursuant to
Kelly v. Kelly, 198 Ariz. 307 (2000). His motion to alter or amend, however,
made no substantive offset argument, stating only that “it appears that this
court failed to consider the social security offset remedy before entering
the” orders. Husband took no further action on his supplemental response
and notice, but now argues the superior court erred in not considering the
Social Security offset. That court, however, could not address an argument
not properly before it, meaning the argument was waived. See, e.g., Cullum
v. Cullum, 215 Ariz. 352, 355 n.5 ¶ 14 (App. 2007) (party generally cannot
argue on appeal legal issues not timely raised with the trial court); Evans
Withycombe, Inc. v. Western Innovations, Inc., 215 Ariz. 237, 240 ¶ 15 (App.
2006) (issues not timely raised deprive opposing party of the “opportunity
to fairly respond”).
2Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
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I. The Payable-to-the-Estate Provision Did Not Modify the Decree.
¶6 Husband argues the court inappropriately modified the
property disposition provision of the decree in violation of A.R.S. § 25-
327(A) when it ordered payment of his retirement benefit to Wife’s estate.
Husband argues that, because the parties did not include a payable-to-the-
estate provision in their agreement, the court erred in including this
provision in the retirement benefit orders.
¶7 The payable-to-the-estate provision in the post-decree orders
did not modify the decree. The parties included Husband’s federal
retirement benefits in their settlement agreement to divide community
property. That settlement agreement was the basis for the corresponding
provisions in the decree. Upon dissolution, Wife’s community share
became her “immediate, present, and vested separate property interest” to
be disposed of as she wished. Koelsch v. Koelsch, 148 Ariz. 176, 181 (1986).
Accordingly, the court did not abuse its discretion by including the
payable-to-the-estate provision.
II. The Federal Retirement Benefits Calculation Was in Error.
¶8 Husband argues the court erred in awarding Wife 37.09
percent of his federal retirement benefits because that calculation
improperly included additional credit for time he served in the military
before the marriage. Husband also argues that the purchase of that credit
with community funds did not change his separate property interest, as a
result of that pre-marital service, to community property.
¶9 Wife argues Husband waived his right to challenge the post-
decree orders by not appealing the decree. Not so. As noted above, the court
entered the post-decree orders noting they were consistent with, and done
so to effectuate, the agreements reflected in the decree. Moreover, Husband
timely filed this appeal addressing the denial of his motion to alter or
amend the post-decree orders. Accordingly, there was no waiver by
Husband’s failure to appeal the decree and this court has appellate
jurisdiction over Husband’s appeal. See Boncoskey v. Boncoskey, 216 Ariz.
448, 451 ¶ 12 (App. 2007) (citing cases).
¶10 Turning to the merits, stated simply, property acquired
during marriage is community property, while property owned or acquired
before marriage is separate property. A.R.S. § 25-213. A basic tenet of
Arizona’s “community property law is that property acquires its character
as community or separate depending upon the marriage status of its owner
at the time of acquisition. ‘Time of acquisition’ refers to the time at which
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the right to obtain title occurs, not to the time when legal title actually is
conveyed.” Potthoff v. Potthoff, 128 Ariz. 557, 561 (App. 1981) (citations
omitted). More specifically, when community funds are spent on
identifiable separate property, “the community [does] not thereby acquire
an interest in the title of the [separate] property itself, but merely ha[s] a
claim for reimbursement on account of the community funds thus
expended.” Id. (citing Kingsbery v. Kingsbery, 93 Ariz. 217 (1963) and Lawson
v. Ridgeway, 72 Ariz. 253 (1951)); see also Van Loan v. Van Loan, 116 Ariz. 272,
274 (1977); A.R.S. §§ 25-211(A), -318(A).
¶11 These and other bedrock Arizona principles are accompanied
by numerous resulting corollaries. For example, although “the fruits of
labor expended during marriage are community property,” Koelsch, 148
Ariz. at 181, the opposite is equally true: the fruits of labor expended before
marriage are separate property. For labor expended during marriage, “even
if the employee spouse is not yet entitled to a pension, [a spouse] ‘and
thereby the community, does indeed acquire a property right in . . . pension
benefits,’ even if the rights have not vested, that is subject to division upon
dissolution.” Boncoskey, 216 Ariz. at 451 ¶ 14 (citation omitted). Again,
however, the opposite is true: a pension right acquired for labor expended
before marriage is separate property, even if funds are used during the
marriage to cause that pre-marriage property right to vest (regardless of the
source of the funds used).
¶12 This does not mean that the source of those funds is irrelevant.
Quite the contrary. Where, as here, community funds are used to acquire
separate property rights in a pension, the community is entitled to
reimbursement for the funds used. But, as noted above, the community
does not thereby “acquire an interest in the title of the [separate] property
itself.” Bourne, 19 Ariz. App. at 231 (citing cases).
¶13 The parties have not cited, and the court has not found, any
Arizona case addressing the precise issue presented here in the context of
retirement benefits. Cases in other states that have done so recognize that
the community does not acquire an interest in pension benefits attributed
to pre-marital service. See, e.g., In re Marriage of Green, 302 P.3d 562, 567, 568
(Cal. 2013) (“[H]usband rendered his [four years of] military service before
the marriage, making the military service credit his separate property . . . .
[T]he difference in value between the four years’ worth of credit and the
cost of obtaining it is husband's separate property, subject to
reimbursement for the community’s contribution to the cost of obtaining
the credit.”); Valachovic v. Valachovic, 9 A.D.3d 659, 660 (N.Y. App. Div.
2004) (concluding, where it was “undisputed” that “three years of military
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service preceded the marriage . . . . [w]hether and to what extent a pension
benefit is marital or separate property is determined by the time period in
which the credit for the pension was earned. As the three years in issue
were admittedly earned prior to the marriage, they remain [husband’s]
separate property.”).
¶14 These out-of-state cases apply different statutory schemes.
But their analysis is consistent with Arizona law, including the property
acquisition principles outlined above. In supplemental briefing, Wife
argues that these out-of-state cases are inconsistent with how Arizona law
values defined-benefit plans, which looks either to present valuation and
offset with other community assets, or by division of the benefit when it
first reserves jurisdiction and then uses a domestic relations order. See
Koelsch, 148 Ariz. at 181-84. Wife’s argument, however, conflates the issue
of the valuation of community property with the issue of what is
community property and what is separate property. Moreover, Wife has
not shown how acknowledging Husband’s pre-marriage service time as his
separate property somehow deviates from Arizona’s pension valuation
methods, or Arizona law more broadly.
¶15 Applying this approach here means that the pre-marriage
service credit in the orders Husband challenges was erroneous in two
respects: (1) Wife should not have been awarded half of the credit for
Husband’s pre-marital service time purchased using community funds but,
instead, should be awarded her share of the community funds used to
purchase that credit plus interest from the time of purchase and (2) Wife
should be awarded her share of the community’s interest in Husband’s
retirement benefits excluding Husband’s pre-marriage service credit. Using
Husband’s 348 months of federal employment service, of which 246 were
during the marriage, yields a community percentage interest of 70.69
percent, of which Wife’s share is 35.35 percent. This percentage, which is
somewhat less than the percentage used in the orders Husband challenges,
should be applied on remand.
CONCLUSION
¶16 The order denying Husband’s motion to alter or amend post-
decree orders awarding retirement benefits to Wife is reversed to the extent
that it addresses Husband’s pre-marriage military service credit, for the
reasons set forth above. That issue is remanded for the superior court to (1)
award Wife her share of the community funds used to purchase that pre-
marriage service credit plus interest from the time of purchase and (2) to
award Wife her 35.35 percent share of the community’s interest in
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Husband’s retirement benefits. In this court’s discretion, both parties’
requests for attorneys’ fees are denied. Husband is awarded his taxable
costs on appeal contingent upon his compliance with Arizona Rule of Civil
Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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