## Facts

- A husband participating in the Public Safety Personnel Retirement System (PSPRS) accrued pension benefits during a long marriage; the marriage was dissolved when the pension was vested and essentially matured (i.e., the employee was eligible, or nearly eligible, to begin receiving benefits).
- In the Koelsch dissolution, the husband was a Department of Public Safety employee and chose to continue working past his earliest retirement date, which would increase his future pension if he delayed retirement.
- The wife sought immediate realization of her share of the community portion of the matured benefits, arguing she should not be required to wait for the husband’s unilateral retirement decision and that her interest could be defeated by plan death-benefit restrictions if he died before retirement.
- The trial court calculated the wife’s share of the community interest using a time-rule approach but ordered payment only when the husband actually retired (i.e., “at the same time and in the same manner” as payments to him).
- A related consolidated matter involving another PSPRS participant used a different mechanism (ordering direct payment from the retirement system before the employee retired), and both matters reached the Arizona Supreme Court for clarification of how to satisfy the nonemployee spouse’s interest in matured PSPRS benefits.

## Issues

1. Whether PSPRS retirement benefits earned during marriage are divisible community property upon dissolution.
2. When PSPRS benefits are vested and matured, whether the nonemployee spouse may be required to wait for payment until the employee spouse elects to retire.
3. Whether the nonemployee spouse must share in post-dissolution increases attributable to the employee spouse’s continued service after dissolution.
4. Whether a court may order PSPRS to pay a former spouse directly before the employee spouse actually retires.

## Decision

- The court held that retirement benefits earned during marriage are deferred compensation and constitute community property to the extent accrued during the marriage.
- When the pension has matured (the employee is eligible to retire and receive payments), the nonemployee spouse’s community share is a separate property interest that cannot be made contingent on the employee spouse’s decision to continue working.
- The nonemployee spouse may not be forced to wait until actual retirement to receive the value of the matured community interest, and may not be compelled to share in post-dissolution enhancements attributable to the employee’s continued work.
- The court rejected (a) “wait until retirement” distribution that lets the employee spouse control the timing and risks defeat of the former spouse’s interest, and (b) orders requiring PSPRS to make payments before retirement contrary to the statutory scheme.
- The court directed use of a present-value-at-maturity approach: determine the community portion’s value at maturity (or near-maturity) and award the nonemployee spouse a lump sum or actuarially equivalent periodic payments from the employee spouse.
- The court reversed the appellate dispositions to the extent inconsistent with these rules and remanded for proceedings consistent with its opinion.

## Legal Principles

- Pension benefits earned during marriage are community property as deferred compensation for marital labor.
- For vested, matured benefits, the nonemployee spouse’s share is a fixed property interest that the employee spouse may not unilaterally delay or impair by postponing retirement.
- Post-dissolution increases attributable to additional service after dissolution are separate property of the employee spouse; the nonemployee spouse is entitled to the value of the community share as of maturity, not later enhancements.
- Courts may not require a public retirement plan to pay benefits before retirement when the governing statutes condition payment on actual retirement; the payment obligation before retirement rests on the employee spouse, not the plan.
- A preferred remedy is valuation at maturity with a buy-out: a lump-sum award or equivalent periodic payments to the nonemployee spouse, preserving the plan’s statutory payment structure.

## Conclusion

The court confirmed that PSPRS benefits earned during marriage are divisible community property and held that, once the benefits have matured, the nonemployee spouse is entitled to receive the value of the community share at maturity through a lump-sum or equivalent payments from the employee spouse, without waiting for the employee’s retirement decision and without sharing in post-dissolution service-based increases; PSPRS itself cannot be compelled to pay before retirement.


Koelsch v. Koelsch, 713 P.2d 1234 (Ariz. 1986)