## Facts

- After a 15-year marriage, the parties dissolved their marriage in Arizona.
- During the marriage, the husband (a law-firm attorney) accumulated vested, nonforfeitable rights in two defined-contribution retirement plans: a profit-sharing plan and a pension plan.
- At trial, the account balances were $17,047.14 (profit-sharing) and $55,380.77 (pension), totaling $72,427.91.
- Plan distributions were generally unavailable until retirement age, although an administrative committee had discretion to allow earlier distributions.
- The trial court treated the vested plan interests as community property but discounted the current balances to reflect the husband’s lack of an immediate right to payment, using a 6% discount over 22 years.
- The marital estate contained sufficient other assets to permit an immediate offset division without undue hardship to the husband.
- The husband incurred certain debts during the marriage secured by his separate property; the trial court found the debts were intended to, and did, benefit the community.

## Issues

1. How should a spouse’s community interest in vested defined-contribution retirement plans be valued and distributed in dissolution: may the court discount current account balances based on delayed access?
2. Should valuation of such retirement accounts be reduced for estimated future tax consequences and inflation?
3. Are debts incurred during marriage for community benefit community obligations even if secured by one spouse’s separate property?

## Decision

- The Arizona Supreme Court vacated the court of appeals’ decision.
- The court held the trial court erred by discounting the defined-contribution plan balances to account for deferred receipt.
- The court ruled the proper valuation for these defined-contribution plans was the current amount credited to the accounts, and the preferred distribution method (when feasible) was a present cash value division with an offset from other marital property.
- The court rejected adjustments for future taxes and inflation as too speculative.
- The court affirmed treating the challenged loans as community debts because they were intended to and did benefit the community, despite being secured by the husband’s separate property.
- The case was remanded for further proceedings consistent with these holdings.

## Legal Principles

- Retirement benefits earned during marriage are community property subject to equitable division in dissolution, whether vested or nonvested.
- For defined-contribution retirement plans, the value is the present amount credited to the account; discounting that amount solely because payment is deferred is improper where the account continues to earn returns.
- The present cash value method is preferred when the retirement interest can be valued accurately and the marital estate has sufficient other property to satisfy the nonemployee spouse’s share without undue hardship to the employee spouse.
- Speculative future effects of taxation and inflation should not be used to reduce the present valuation of retirement accounts in dissolution proceedings.
- Debts incurred during marriage for community purposes are community obligations even if secured by one spouse’s separate property.

## Conclusion

The court required valuation and division of vested defined-contribution retirement plans based on current account balances (using an immediate offset when feasible), barred speculative reductions for future taxes and inflation, and confirmed that loans benefiting the community are community debts regardless of separate-property collateral.


Johnson v. Johnson, 131 Ariz. 38 (Ariz. 1981)