Sheppard v. McLaren

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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 Matter of:

JYME SUE SHEPPARD, Petitioner/Appellee,

v.

MARK MCLAREN, Respondent/Appellant.

No. 1 CA-CV 23-0006 FC
FILED 10-26-2023

Appeal from the Superior Court in Maricopa County
No. FN2020-002303
The Honorable Max Covil, Judge

VACATED IN PART AND REMANDED

COUNSEL

Berkshire Law Office, PLLC, Tempe
By Keith Berkshire & Alexandra Sandlin
Counsel for Petitioner/Appellee

Jeffrey G. Pollitt, P.C., Phoenix
By Jennika N. McKusick & Jeffrey G. Pollitt
Counsel for Respondent/Appellant
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Decision of the Court

MEMORANDUM DECISION

Judge Paul J. McMurdie delivered the Court’s decision, in which Presiding
Judge D. Steven Williams and Judge Samuel A. Thumma joined.

M c M U R D I E, Judge:

¶1 Mark McLaren (“Husband”) appeals the spousal
maintenance award to Jyme Sue Sheppard (“Wife”) in the decree dissolving
their marriage. Because the superior court erred when determining how
much Wife would receive from her pension, overlooked the interest income
available to Wife from her retirement accounts, and made contradictory
findings about Wife’s ability to work, we vacate the spousal maintenance
award and remand for further consideration.

FACTS AND PROCEDURAL BACKGROUND

¶2 The parties married in 2001 and have no minor children. Wife
worked in the transportation industry for over twenty years. Most recently,
she was the Valley Metro Chief of Staff and retired in 2016. The couple
agreed that Wife should retire because she was fully vested in her Arizona
State Retirement System (“ASRS”) pension, and her superior had been
convicted of fraud. Wife’s new superior decided to replace the leadership
team, including Wife, even though she was not involved in the fraud.
Husband also works in the transportation industry, earning over $350,000
annually, including regular bonuses.

¶3 Wife petitioned for dissolution in May 2020. During the 2022
trial, Wife was 59 years old, and Husband was 60. Wife requested a spousal
maintenance award of $6,000 monthly for ten years. Husband argued that
Wife was not eligible for spousal maintenance because she could return to
work and had sufficient property to meet her reasonable needs. The
superior court awarded Wife $6,000 monthly for six years and $3,000
monthly for the next three years.

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¶4 Husband appealed from the decree and the order granting his
post-decree motion to alter or amend in part.1 We have jurisdiction under
A.R.S. § 12-2101(A)(1) and (2).

DISCUSSION

¶5 Husband concedes that Wife was eligible for spousal
maintenance under A.R.S. § 25-319(A)(4) but argues that Wife was not
entitled to a spousal maintenance award because her earning ability and
property are enough to provide for her expenses. We review a spousal
maintenance award for an abuse of discretion, viewing the evidence in the
light most favorable to upholding the award. Cullum v. Cullum, 215 Ariz.
352, 354, ¶ 9 (App. 2007). We will affirm if reasonable evidence supports the
award. Id.

A. The Superior Court Erred by Finding that Wife’s Pension Income
Will Decrease After the Divorce.

¶6 Considering Wife’s financial resources and ability to meet her
needs independently, see A.R.S. § 25-319(B)(9), the superior court found that
Wife receives a monthly pension from ASRS. Her gross monthly pension
payment is $8,054, from which she nets $6,791. At the trial, Wife asked to
have ASRS pay Husband his share of the community portion of her
monthly pension and opposed Husband’s request that the court value his
interest in her pension using the present cash value method. Under the
present cash value method, the employee spouse receives a free and clear
interest in the pension, and the non-employee spouse’s interest is paid in a
lump sum, “either offset with other community property or bought out by
the employee spouse[.]” Koelsch v. Koelsch, 148 Ariz. 176, 183 (1986).

1 The superior court entered the dissolution decree under Arizona
Rule of Family Law Procedure 78(b) and found there was “no just reason to
delay making a final order” despite outstanding issues. The court entered
its ruling on Husband’s motion to alter or amend the decree under Arizona
Rule of Family Law Procedure 78(c) and found that “[n]o further claims or
issues remain[ed] for the Court to decide.” We note the inconsistencies in
the court’s assessment of this case’s finality but treat the court’s
post-judgment ruling as affirming the dissolution decree’s appealable
issues.

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¶7 As Husband requested, the superior court used the present
cash value method to divide Wife’s pension.2 The court found the present
cash value of the community portion of Wife’s pension was $1,102,597.
Awarding Husband that amount under the present cash value method
means that Wife will continue to receive her full monthly pension, but
Husband’s share must be paid from Wife’s portion of the remaining
retirement assets or other property. See Koelsch, 148 Ariz. at 183. Yet the
court found that Wife’s net pension income will “drop to below $5,000 per
month after Husband receives his share of Wife’s [ASRS] pension.” Wife
acknowledges this was incorrect because the court used the present cash
value method when dividing her pension.

¶8 The superior court found that Wife’s monthly expenses
ranged from $9,000 to $10,500. Based on the incorrect finding that Wife’s
pension income would drop below $5,000 per month, the court found that
Wife had a shortage of $5,700 per month. Thus, the $6,000 monthly spousal
maintenance award was based on an incorrect factual premise. Wife’s
pension income will remain the same, but as noted above, she will have to
pay Husband his share ($551,298.50, representing half of the $1,102,597
present cash value) from other assets. See Koelsch, 148 Ariz. at 183.

¶9 Wife argues that we can affirm the award despite this error
because the superior court could consider other expenses supporting its
finding that she had a shortage. For example, she will have to take out a line
of credit costing $2,000 monthly to pay Husband $200,000 for the real
property equalization payment. According to Wife, her expenses justify the
award even using the correct pension income.

¶10 But the superior court found that Wife had up to $10,500 in
monthly expenses. Wife’s position would require us to infer that the court
found that Wife had even more expenses than $10,500. But we cannot
disregard the court’s express finding that Wife’s reasonable expenses
ranged from $9,000 to $10,500 monthly. See Thomas v. Thomas, 142 Ariz. 386,
390 (App. 1984) (We infer findings only if they do not conflict with the
court’s express findings and if the record supports the inferences.). Given

2 The court granted Husband’s request to “[a]mend the [d]ecree to
reflect the correct present cash value (the actuarial current value) of the
community portion of the ASRS Plan—$1,102,597—and award one-half of
this value to Husband as an offset against his vested and mature retirement
account[.]” But the court did not specify how Wife would pay the amount.
On remand, the court must account for how Wife is to pay.

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the incorrect finding about Wife’s pension income, the stated reason for the
spousal maintenance award—Wife’s $5,700 monthly shortage—does not
support the ruling. We vacate the spousal maintenance award and remand
for the court to reconsider using Wife’s correct pension income.3

B. The Superior Court Failed to Consider Any Interest-Earning
Potential of Wife’s Non-Pension Retirement Accounts.

¶11 To determine Wife’s income, the superior court only
considered Wife’s pension income. But the court found that Wife will
receive over $1 million in retirement funds and an unspecified amount
when Husband’s deferred compensation plan becomes payable. Husband
argues this was error. We agree.

¶12 The superior court must consider all property able to produce
income, including interest on retirement accounts, when the spouse
requesting support can do so without penalty. See Deatherage v. Deatherage, 140 Ariz. 317, 320 (App. 1984); Driss v. Driss, 1 CA-CV 18-0243 FC, 2019 WL
544495, at *4, ¶¶ 16-17 (Ariz. App. Feb. 12, 2019) (mem. decision). Given
Wife’s age, she can receive the interest income from the retirement accounts
without penalty and only pay taxes. The court failed to consider the
income-earning potential of the retirement assets awarded to Wife. See
A.R.S. § 25-319(B)(9).

¶13 Wife argues the superior court did not abuse its discretion
because there was no evidence showing the rate of return on these
retirement assets or the tax consequences of receiving the interest income.
But statements from Wife’s retirement accounts showed gains over the last
quarter of 2021. Wife’s financial expert also testified that a moderate growth
rate was five to seven percent. Wife received substantial assets with a
demonstrated income-producing history, which the court disregarded. The
court can attribute an appropriate rate of return on the retirement assets
without defying Wineinger v. Wineinger, 137 Ariz. 194, 198 (App. 1983),
because Wife need not dissipate the principal investment. Because the
interest earned on Wife’s retirement accounts is a financial resource
available to Wife without penalty, the court erred by not considering it
absent an express finding about why it would be inappropriate to do so. See

3 Husband also disputes some of Wife’s claimed expenses, but the
amount still fell within the court’s $9,000 to $10,500 range. In any event,
because we remand for further consideration, Husband can present his
argument to the superior court.

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Kelsey v. Kelsey, 186 Ariz. 49, 53 (App. 1996); accord A.R.S. § 25-319 app.
(“Spousal Maintenance Guidelines”) § III.C.1.c, available at
https://www.azcourts.gov/familylaw/Child-Support-Family-Law-
Information/Spousal-Maintenance-Guidelines (“When considering the
property’s income potential, the court may attribute a four percent rate of
return unless rebutted.”).

¶14 Because the superior court erred when determining Wife’s
pension income and overlooked the interest earned on the retirement
accounts, we vacate the spousal maintenance award and remand for further
consideration. On remand, the superior court must also consider that Wife’s
non-pension retirement assets will be reduced by the amount required to
equalize Husband’s share of Wife’s pension.

C. The Superior Court’s Findings About Wife’s Income from
Employment Are Unclear.

¶15 When calculating a spousal maintenance award, a court must
consider the requesting spouse’s earning ability. See A.R.S. § 25-319(B)(3),
(5), (9). Although Wife had been retired for six years, Husband asserted that
she could return to work and earn enough to provide for her needs. We
review whether the court may attribute income to a spouse and what factors
to apply de novo. Pullen v. Pullen, 223 Ariz. 293, 295, ¶ 9 (App. 2009). But we
review whether the court properly applied those factors for an abuse of
discretion. Id.

¶16 When considering Wife’s spousal maintenance eligibility, the
superior court found that Wife could work part-time to supplement her
income. See A.R.S. § 25-319(A)(2). When considering whether Wife was
entitled to spousal maintenance, the court found that the parties agreed that
Wife would retire because she was fully vested in her ASRS pension. The
court detailed Wife’s position about her employability but neither accepted
nor rejected her arguments. And the court failed to state how much Wife
could earn working part-time. In fact, when addressing Wife’s financial
resources, see A.R.S. § 25-319(B)(9), the court only included Wife’s pension
income.

¶17 It is unclear how Wife’s part-time employability factored into
the superior court’s conclusion that Wife was entitled to $6,000 per month
for six years and $3,000 per month for the next three years. On remand, the
court must clarify its findings about Wife’s earning potential.

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Decision of the Court

ATTORNEY’S FEES AND COSTS

¶18 Husband and Wife request attorney’s fees on appeal under
A.R.S. § 25-324. Per our discretion, we award Wife her reasonable attorney’s
fees on appeal based on Husband’s greater financial resources. See A.R.S.
§ 25-324(A). Husband is the successful party on appeal and is entitled to
costs under A.R.S. § 12-342 upon compliance with ARCAP 21.

CONCLUSION

¶19 We vacate the spousal maintenance award and remand for
further consideration consistent with this decision. We affirm the rest of the
decree.

AMY M. WOOD • Clerk of the Court
FILED: AA

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