Kelly v. Kelly
In Kelly v. Kelly, 198 Ariz. 307, 9 P.3d 1046 (2000), the Arizona Supreme Court considered whether a portion of a husband's retirement plan should be exempt from division as community property because his contributions to the plan were in lieu of Social Security contributions.
The husband participated in a federal retirement program and did not make Social Security contributions. Id. at P1. The wife in Kelly participated in a different federal retirement program and part of her salary was paid into the Social Security system. Id.
In accordance with 42 U.S.C. 407(a), the wife's accrued Social Security benefits were her sole and separate property and not subject to division in the dissolution proceeding even though they were paid from community property earned during the marriage. Id. at P2.
The husband asked the trial court to consider a portion of his benefits as separate property to compensate for this inequity. Id. at P3. The trial court refused his request, but our supreme court held that this was error. Id. at P5.
The supreme court reasoned that the equitable distribution of community property is a matter of fairness dependent on the facts of each case. Id. at 309, P8, 9 P.3d at 1048.
Applying that concept of fairness, the court agreed with the husband that spouses who do not participate in Social Security must be treated the same as spouses who do participate and who therefore enjoy an exemption of that asset from distribution upon dissolution. Id. at P9.
The wife had paid a portion of her salary -- which was community property -- into the Social Security system and the accrued benefits, if not for federal law, would have been divisible as community property in Arizona.
Viewed another way, it can be seen that in the absence of social security contributions, the community could have spent, saved, or invested those funds as it saw fit.
In each instance the resulting asset, if any, would have been divisible as community property. But, as matters presently stand, community funds have been diverted to the separate benefit of one spouse. We believe this situation compels an equitable response. . . .
A present value . . . should be placed on the social security benefits husband would have received had he participated in that system during the marriage. This necessarily will require a reconstruction of his wages. The social security calculation can then be deducted from the present value of husband's pension . . . . The remainder, if any, is what may be divided as community property. Id. at PP 10-11.
In Kelly v. Kelly, both parties were federal employees with retirement pensions of which one had a component that included Social Security.
No part of Father's pension benefits will be considered separate property for the purpose of division of the retirement.
Even if Mother has received Social Security benefits, they are not subject to division nor is it appropriate to attempt to calculate what Father would have received if he had participated in the Social Security system and deduct that amount from the Retirement benefits. Hisquierdo v. Hisquierdo, 439 U.S. 572, 59 L. Ed. 2d 1, 99 S. Ct. 802 (1979) as quoted in Kelly v. Kelly.
Mother shall be entitled to her share of the Arizona Public Safety Personnel Retirement System as calculated by the number of months of marriage divided by the number of months the pension accrued times 50 percent.