Amended Per Order Filed Jan. 7, 2015
Appeal from the Superior Court in Maricopa County The Honorable Paul J. McMurdie, Judge No. DR1991-092542
Memorandum Decision of the Court of Appeals, Division One 1 CA-CV 13-0649 Filed Dec. 18, 2014
James S. Osborn Popp (argued), Popp Law Firm, PLC, Tempe, for Diane Merrill
Keith Berkshire (argued), Maxwell Mahoney, Berkshire Law Office PLLC, Phoenix, for Robert Kenneth Merrill
JUSTICE TIMMER authored the opinion of the Court, in which CHIEF JUSTICE BALES, VICE CHIEF JUSTICE PELANDER and JUSTICES BRUTINEL and BERCH (retired) joined.
¶1 Federal law prohibits courts in marital dissolution proceedings from dividing any portion of military retirement pay ("MRP") waived by a retired veteran to receive Combat-Related Special Compensation ("CRSC") benefits pursuant to 10 U.S.C. § 1413a. Arizona law prohibits courts from "making up" for the resulting reduction in MRP by awarding additional assets to the non-military ex-spouse. A.R.S. § 25-318.01. We recently held that neither federal law nor § 25-318.01 precludes the family court from ordering a retired veteran to indemnify an ex-spouse for a reduction in the latter's share of MRP caused by a post-decree waiver of MRP made to obtain Department of Veterans Affairs ("VA") disability benefits pursuant to 38 U.S.C. chapter 11. In re Marriage of Howell, No. CV-15-0030-PR, slip op. at *9 ¶ 25 (Ariz. Dec. 2, 2015). For the reasons set forth in Howell, we hold that § 25-318.01 likewise cannot apply to preclude indemnification when a retired veteran makes a post-decree waiver of MRP to obtain CRSC benefits and the decree was entered before § 25-318.01's effective date.
¶2 Robert Merrill and Diane Merrill married in 1963 and divorced in 1993. Robert was injured in combat while serving with the Army in Vietnam. He retired from the Army in 1983 and went to work in the private sector. At the time of the divorce, Robert received MRP and VA disability benefits based on a disability rating of 18.62 percent. The family court did not divide Robert's disability benefits but awarded each party "one-half" of the MRP as their sole and separate property and issued a qualified domestic relations order to implement that award.
¶3 After the parties' divorce, Robert became unemployable due to his disabilities. Thus, in 2004, the VA changed Robert's disability rating to 100 percent and found him eligible to receive CRSC. The CRSC program permits some veterans injured in combat to waive a portion of their "disposable" MRP for an equal amount of tax-free CRSC. See 10 U.S.C. § 1413a. Federal law prohibits courts from treating CRSC as community property. See 10 U.S.C. § 1408(c)(1) (authorizing a state court to treat only "disposable retired pay" as community property); § 1413a(g) ("Payments under this section are not retired pay."). Robert waived a significant portion of MRP to receive CRSC and, as a result, Diane's monthly share of MRP from 2004 onward decreased dramatically. In 2010, for example, Diane's monthly share of MRP was reduced from $1, 116 to $133.
¶4 In 2010, Diane petitioned the family court to award her arrearages for her reduced share of MRP and to compensate her for future reduced payments of MRP. The family court denied Diane's petition, reasoning that § 25-318.01 proscribes the requested relief.
¶5 The court of appeals reversed, holding that § 25-318.01 applies only to VA disability benefits awarded pursuant to 38 U.S.C. chapter 11, not to CRSC awarded pursuant to 10 U.S.C. § 1413a. Merrill v. Merrill 230 Ariz. 369, 375 ¶ 25, 284 P.3d 880, 886 (App. 2012) ("Merrill I"). The court applied long-standing case law to conclude that Robert must indemnify Diane against her loss of MRP. Id. at 373 ¶ 13, 284 P.3d at 884. It remanded for the family court to determine whether Robert could indemnify Diane from his non-exempt assets. Id. at 377 ¶ 30, 284 P.3d at 888.
¶6 On remand, the family court awarded Diane $128, 574.35 in MRP arrearages accrued through July 2013 to be paid by Robert "from any and all non-exempt income and assets" (the "2013 Order"). It also ordered Robert to pay Diane $1, 486.50, subject to cost of living ...