Merkley v. Merkley

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

In re the Marriage of:

PAUL MERKLEY, Petitioner/Appellant,

v.

MICHELLE A. MERKLEY, Respondent/Appellee.

No. 1 CA-CV 25-0515 FC
FILED 02-26-2026

Appeal from the Superior Court in Yuma County
No. S1400D0201101172
The Honorable Mark W. Reeves, Judge

AFFIRMED

COUNSEL

Stanley David Murray Attorney at Law, Scottsdale
By Stanley D. Murray
Counsel for Petitioner/Appellant

Popp Law Firm, PLC, Tempe
By James S. Osborn Popp
Counsel for Respondent/Appellee
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Decision of the Court

MEMORANDUM DECISION

Judge Angela K. Paton delivered the decision of the Court, in which
Presiding Judge Michael S. Catlett and Judge Jennifer M. Perkins joined.

P A T O N, Judge:

¶1 Paul Merkley (“Husband”) appeals a Court Order Acceptable
for Processing Re: Federal Employees Retirement System (“COAP”) and
the denial of his motion to alter or amend the COAP’s terms. For the
following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Husband and Michelle Merkley (“Wife”) married in January
1995. Husband served Wife a petition for dissolution on November 2, 2011,
and they divorced pursuant to a default decree, which Husband filed and
the court entered on January 30, 2012.

¶3 Husband has participated in the Federal Employee
Retirement System (“FERS”) since August 11, 2002. The decree provided
that:

Wife shall receive one-half of the community’s interest in
Husband’s FERS pension plan, said interest commencing as
of August 11, 2002[,] and terminating as of November 2, 2011.
The remaining portions of the FERS pension plan are
awarded to Husband free and clear of any claim, title and
interest of Wife, including the right to be named as the former
spouse survivor annuitant.

¶4 At the time of dissolution, Husband was not yet eligible for
retirement. Instead of valuing and dividing the community’s interest in the
pension plan at that time, the decree “reserve[d] [the court’s] jurisdiction to
resolve any issues pertaining to the division of the FERS pension plan.”

¶5 Husband applied for retirement in January 2025, a few
months before his mandatory retirement at age 57. Shortly before he
applied, Wife prepared a proposed COAP so she could receive her share of
the pension payments. Husband refused to stipulate to her proposed

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COAP, so Wife petitioned the court for post-decree relief, asking it to enter
her proposed COAP.

¶6 Wife’s proposed COAP awarded her a pro-rata share of the
value of Husband’s benefits at the time of his retirement, which included
increases in value due to his continued employment after their divorce, as
well as a share of the cost of living adjustments. It also provided that her
share of the benefits would be payable to her estate if she predeceased
Husband (the “payable-to-the-estate provision”). Finally, it awarded her a
share of the plan’s “FERS Annuity Supplement.”

¶7 Husband argued in response that Wife’s proposed COAP was
inconsistent with the decree’s language and violated federal law
prohibiting the division of social security benefits. He submitted his own
proposed COAP.

¶8 After hearing from both parties at a resolution management
conference, the court entered a COAP adopting Wife’s proposed
provisions. Husband unsuccessfully moved to alter or amend the order.
Husband timely appealed the COAP and denial of his motion. We have
jurisdiction pursuant to Article 6, Section 9 of the Arizona Constitution and
Arizona Revised Statutes (“A.R.S.”) Section 12-2101(A)(2).

DISCUSSION

I. The superior court did not err in awarding Wife a share of the
benefits valued as of Husband’s retirement.

¶9 Husband first argues that the decree provided that Wife’s
interest in the FERS benefits “terminat[ed] as of November 2, 2011,” so Wife
was entitled only to a share of the benefits’ value as of that date. And any
increases due to his post-dissolution employment or cost of living
adjustments were “remaining portions of the FERS pension plan” that the
decree awarded to him “free and clear.”

¶10 We review the superior court’s interpretation of a dissolution
decree de novo. Cohen v. Frey, 215 Ariz. 62, 66, ¶ 10 (App. 2007).

¶11 Pension benefits earned by the community effort of a spouse
during marriage are subject to equitable division. Van Loan v. Van Loan, 116
Ariz. 272, 273-274 (1977). The community’s interest in a pension plan is an
interest in the value of the matured benefits—even if the value increases
after dissolution. See Cooper v. Cooper, 167 Ariz. 482, 490 (App. 1990).

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¶12 At the time of dissolution, Husband’s pension had not yet
matured. Johnson v. Johnson, 131 Ariz. 38, 41, n. 2 (1981) (unmatured pension
right is one that does not confer an unconditional right to immediate
payment of normal retirement benefits). Our supreme court has approved
two methods of apportioning unmatured benefits in a pension plan: the
reserved jurisdiction method and the present cash value method.
Hetherington v. Hetherington, 220 Ariz. 16, 19, ¶ 9 (App. 2008). Husband does
not contest the superior court’s use of the reserved jurisdiction method,
provided for in the default decree that he proposed.

¶13 Under the reserved jurisdiction method, the court calculates
each spouse’s share of pension benefits when the employee spouse retires,
using a calculation known as the time formula. Cooper, 167 Ariz. at 490.
First, the court calculates the community share “by dividing the length of
time worked during the marriage by the total length of time worked toward
earning the pension.” Johnson, 131 Ariz. at 41, n. 4. Each pension payment
is then multiplied by that figure to determine the portion of the payment
constituting community property, which is then divided between the
spouses. Id. at n. 5. The actual division of pension payments occurs “if, as,
and when” the pension is paid out, id. at 41, but the non-employee spouse
“receives an immediate, present, and vested separate property interest” in
his or her share as soon as dissolution occurs. Koelsch v. Koelsch, 148 Ariz.
176, 181 (1986).

¶14 We have approved the reserved jurisdiction method and time
formula. See Boncoskey v. Boncoskey, 216 Ariz. 448, 453, ¶ 21 (App. 2007). We
have decided that when the “number of years served by the employee
spouse is a substantial factor” in determining the benefits such employee
will receive, “the community is entitled to have its share based upon length
of service performed on behalf of the community in proportion to the total
length of service necessary to earn those benefits.” Cooper, 167 Ariz. at 490.
Indeed, either apportionment method entitles the non-employee spouse to
a share of the pension benefits valued at maturity; under the present value
approach, the value of benefits at the time of expected retirement is simply
determined actuarily at the time of dissolution. See Koelsch, 148 Ariz. at 184
(under the present value approach, “the community property portion of the
retirement benefit would be calculated by multiplying the lump sum
present value of the pension plan at the date of maturity” (emphasis added)).

¶15 A non-employee spouse is also entitled to any increase in his
or her share of pension benefits due to cost of living adjustments because
this increase is due to the “inherent quality” of the pension plan, rather than
the employee spouse’s post-dissolution efforts. Koelsch, 148 Ariz. at 184, n.

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9 (“[A]ny benefits due to the inherent quality of the pension plan,” such as
a “statutorily authorized cost of living increase,” is community property).

¶16 The amount of Husband’s pension benefits depends on his
salary and years of service. Because Husband’s years of service is a
substantial factor in determining his monthly benefit under his pension
plan, Wife is entitled to a share “based upon length of service performed on
behalf of the community in proportion to the total length of service
necessary to earn those benefits.” Cooper, 167 Ariz. at 490. And his pension
plan includes statutorily mandated cost of living adjustments, so the
adjustments are an “inherent quality” of the pension plan that Wife is
entitled to share in. 5 U.S.C. § 8462(b)(1); see Koelsch, 148 Ariz. at 184, n. 9.

¶17 Husband cites a single out-of-state case to support his
argument that the community interest in the pension plan should be valued
as of the date of dissolution using a calculation that he calls the “frozen
benefit” method. See Casner v. Casner, 126 N.E.3d 302 (Ohio 2018). But
Husband’s proposed “frozen benefit” formula is not supported by the
language in the decree nor any Arizona case law. See Carrion v. Carrion, 1
CA-CV 22-0135 FC, 2022 WL 4372977, at **4-5, ¶¶ 25-26 (Ariz. App. Sept.
22, 2022) (mem. decision) (“Husband’s requests to apply a frozen benefit
formula . . . are not supported by . . . Arizona law.”); Cohen, 215 Ariz. at 67,
¶ 14 (a decree’s language is construed in the context of established
community property law).

¶18 Husband also points to a separate provision in the decree,
which awards Wife $18,000 of his Thrift Savings Plan, to support his
contention that the decree intended to award Wife “frozen benefits.” His
argument is unavailing. Husband drafted the default decree. The value of
his pension benefits at the time of dissolution could have been calculated at
that time. If anything, his use of a flat sum to divide his Thrift Savings Plan
demonstrates that he could have done the same for his FERS pension plan
but chose not to.

¶19 Wife’s share of the community’s interest in the FERS pension
plan became her separate property as of the dissolution date. She is entitled
to the increases in its value due to Husband’s continued employment and
the cost of living adjustments.

II. The superior court did not modify the decree by including the
payable-to-the-estate clause.

¶20 Husband next argues the decree did not expressly provide
Wife the right to direct pension payments to her estate, so the court

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impermissibly modified the decree by including the payable-to-the-estate
provision in its order.

¶21 Wife’s right to direct her share of the pension benefits to her
estate is not a separate FERS benefit, but a right inherent to ownership of
separate property. See Stock v. Stock, 250 Ariz. 352, 354, ¶ 7 (App. 2020).
Upon dissolution, a former spouse’s share of pension benefits becomes his
or her “immediate, present, and vested separate property interest.” Koelsch,
148 Ariz. at 181. And a spouse has the right to control his or her separate
property, including how it is to be disposed upon death. See Stock v. Stock, 250 Ariz. 352, 354, ¶ 7 (App. 2020).

¶22 By awarding her a share of the benefits, the decree awarded
her all the rights intrinsic to the ownership of separate property, including
the right to dispose of it upon her death. See id.

III. The superior court did not err in awarding Wife a portion of the
FERS annuity supplement.

¶23 Husband next contends that the FERS annuity supplement
was “intended to replicate” his social security benefits because his position
required him to retire before he was eligible to receive them. Therefore, he
argues, the COAP violated federal law prohibiting the division of social
security benefits by awarding Wife a share of the annuity supplement. He
further argues the decree did not expressly provide Wife with the right to
the annuity supplement.

¶24 We review the application of statutes de novo. Thomas v.
Thomas, 203 Ariz. 34, 36, ¶ 7 (App. 2002).

¶25 An individual becomes eligible to receive social security
retirement benefits upon turning 62 years old. 42 U.S.C. § 402(a)(2).
Therefore, certain federal employees who are required to retire before age
62 are entitled to receive the FERS “annuity supplement,” which provides
monthly payments equal to what they would receive from social security
between their mandatory retirement age and when they turn 62 years old.
5 U.S.C. § 8421.

¶26 Social security benefits may not be divided by state courts
upon dissolution pursuant to Section 407(a) of the Social Security Act. 42
U.S.C. § 407(a); Kelly v. Kelly, 198 Ariz. 307, 308, ¶ 5 (2000), as amended (Oct.
11, 2000). But this prohibition applies only to payments under subchapter
II of the Social Security Act. 42 U.S.C. § 407(a) (“The right of any person to

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any future payment under this subchapter shall not be transferable or
assignable.” (emphasis added)).

¶27 The FERS annuity supplement was created by the Federal
Employees’ Retirement System Act (“FERSA”)—not the Social Security Act.
FERSA expressly provides that “payments under this chapter,” which
include both the basic annuity and the annuity supplement, may be paid to
a former spouse pursuant to “any court decree of divorce.” 5 U.S.C. § 8467;
see also § 8421(c) (clarifying that the annuity supplement “shall, for purposes
of [S]ection 8467, be treated in the same way as” the basic annuity).

¶28 Section 407(a) of the Social Security Act does not prohibit the
division of Husband’s FERS annuity supplement. Husband admits the
FERS annuity supplement may be divided if expressly provided for in a
court order, which the COAP did. The decree did not need to specifically
mention the annuity supplement because it apportioned each spouse half
of the community’s interest in Husband’s “FERS pension plan,” which
includes the annuity supplement. Awarding Wife the supplement to her
interest in the annuity itself is consistent with both the language of the
decree and federal law.

¶29 Finally, Husband claims the superior court erred in denying
his motion to alter or amend because the COAP was contrary to law and
unsupported by the evidence. For the reasons explained above, none of the
COAP provisions that Husband challenges were erroneous. The court did
not err in denying his motion.

¶30 Both parties request attorneys’ fees. Husband requests fees
under Section 25-324. Wife failed to cite any authority to support her
request, as required by Arizona Rule of Civil Appellate Procedure
(“ARCAP”) 21(a)(2). In the exercise of our discretion, we decline both
parties’ requests. As the prevailing party, Wife is entitled to her costs on
appeal upon compliance with ARCAP 21(b).

CONCLUSION

¶31 We affirm.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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