Arizona Court Of Appeals Division One Holds That Division of a Community’s Interest in Pension Rights That Have Not Yet Matured Is Governed By Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981) and Not Koelsch v. Koelsch 148 Ariz. 176, 713 P.2d 1234 (1986).

In a divorce proceeding governed by a consent decree incorporating the parties’ settlement agreement, a special master was appointed to resolve the sole outstanding issue of how the community’s interest in husband’s pension should be divided. In its order appointing the Special Master, the trial court stated that Koelsch v. Koelsch, 148 Ariz. 176, 713 P.2d 1234 (1986) controlled the valuation and payment of the pension interests. In Koelsch, the Supreme Court established the appropriate method for valuing and paying a community interest in a pension that had matured, where the pensioner desired to continue working past the maturity date. In such circumstances, the Court held that division of the pension must be based on present value when the pension matured, and payoff should either be in the form of a lump sum paid in full or in installments beginning immediately.

Based on the court’s instruction to apply Koelsch, the Special Master determined that husband could take early retirement at age 50 with a reduced benefit. Thus, the Special Master valued the pension as of that maturity date, and recommended husband begin making payments at age 50 to wife of her half of the community interest in the pension. The trial court adopted the Special Master’s report and entered a Domestic Relations Order (“DRO”). Husband timely appealed.

The Arizona Appeals Court vacated the DRO and remanded. The Court held that the superior court erred in instructing the Special Master to apply Koelsch, because husband’s pension rights were not yet mature. Rather, in situations where pension rights are not mature, Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981), is the proper controlling authority. Under Johnson, division of pension payments occur “if, as, and when” the pension is paid out. Moreover, Johnson recognized that mature pension rights are unconditional rights to immediate payment. Thus, the court erred in ordering husband to make payments based on early retirement at age 50 because husband will not have acquired an unconditional right to full payment at that time.

Judge Weisberg authored the majority opinion, joined by Presiding Judge Winthrop and Judge Ehrlich.