Howell v.

Citation238 Ariz. 407,361 P.3d 936,727 Ariz. Adv. Rep. 25
Decision Date02 December 2015
Docket NumberNo. CV–15–0030–PR.,CV–15–0030–PR.
PartiesIn re the Marriage of Sandra HOWELL, Petitioner/Appellee, John Howell, Respondent/Appellant.
CourtSupreme Court of Arizona

Charles W. Wirken(argued), Gust Rosenfeld PLC, Phoenix, Attorney for Sandra Howell.

Barry G. Nelson, Law Office of Barry Nelson, Cortaro; and Keith Berkshire (argued), Maxwell Mahoney, Berkshire Law Office, PLLC, Phoenix, Attorneys for John Howell.

Opinion

Justice TIMMER, opinion of the Court.

¶ 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 service-related disability benefits. In 2010, the Arizona Legislature enacted A.R.S. § 25–318.01to prohibit courts from “making up” for the resulting reduction in MRP by awarding additional assets to the non-military ex-spouse. The issue before us is whether federal law or § 25–318.01prohibits courts from fashioning such relief when the veteran elects to waive retirement pay after the court has awarded the ex-spouse a share of MRP in a decree entered before 2010. We hold that neither federal law nor § 25–318.01precludes such an order.

I. BACKGROUND

¶ 2 John Howell and Sandra Howell divorced in 1991. Pursuant to the parties' agreement, the dissolution decree provides that [Sandra] is entitled to and is awarded as her sole and separate property FIFTY PERCENT (50%) of [John's] military retirement when it begins through a direct pay order.” John retired from the Air Force in 1992 after a twenty-year career, and the parties began receiving MRP the next year.

¶ 3 In 2005, the Department of Veterans Affairs (“VA”) approved John's claim that degenerative joint disease

in his shoulder directly related to his military service. The VA assigned him a twenty percent disability rating to reflect the extent of his impairment for civilian employment. See38 C.F.R. § 4.1(explaining the rating system). He qualified for monthly, tax-exempt VA disability payments, which increased yearly. See38 U.S.C. § 5301(a)(bestowing tax-exempt status). To prevent “double dipping,” Mansell v. Mansell,490 U.S. 581, 583, 109 S.Ct. 2023, 104 L.Ed.2d 675 (1989), a veteran who receives MRP cannot collect VA disability benefits unless the veteran waives an equivalent amount of MRP (a “VA waiver”), see38 U.S.C. §§ 5304–5305. John elected a VA waiver that was effective from July 1, 2004, the day after he filed his claim with the VA.

¶ 4 As a result of the VA waiver, the Defense Finance and Accounting Service (“DFAS”), which administers MRP, reduced monthly payments to both John and Sandra, and John began collecting VA disability benefits. For example, John's gross MRP in October 2013 was $1,474. DFAS subtracted the VA waiver amount of $255 to calculate $1,219 in disposable pay and then paid John and Sandra $609.50 each. Simultaneously, the VA paid John $255 in disability benefits. But for the VA waiver, Sandra would have received an additional $127.50 per month.

¶ 5 In 2013, Sandra filed a motion to enforce the decree's division of MRP and also sought judgment against John for an arrearage amount equaling the reductions in her share of MRP after the VA waiver. John moved to dismiss the request, arguing that A.R.S. § 25–318.01barred the family court from requiring John to indemnify Sandra for the reduction in her share of MRP. The court granted Sandra's motion, ruling that she had a vested property right in fifty percent of the MRP, and neither John's election nor § 25–318.01could deprive her of this right. After an evidentiary hearing, the court awarded Sandra $3,813 in MRP arrearages incurred after December 1, 2011, but found that the equitable doctrine of laches prevented her from recovering earlier arrearages (the 2014 Order”). It also ruled that [John] is responsible for ensuring [Sandra] receive[s] her full 50% of the military retirement without regard for the disability.”

¶ 6 The court of appeals affirmed but for a different reason. In re the Marriage of Howell,2 CA–CV 2014–0112, 2014 WL 7236856 (Ariz.App. Dec. 18, 2014)(mem. decision). It held that § 25–318.01, by its terms, does not apply to post-decree enforcement proceedings, such as the one Sandra initiated, and the family court therefore correctly refused to apply the statute. Id.at 4–5 ¶¶ 8–9. Sandra did not appeal the family court's laches ruling.

¶ 7 We granted review because the interpretation of § 25–318.01is a recurring issue of statewide importance. We have jurisdiction pursuant to article 6, section 5(3) of the Arizona Constitutionand A.R.S. § 12–120.24.

II. DISCUSSION
A. Federal preemption

¶ 8 John argues that, regardless of the applicability of § 25–318.01, the Uniformed Services Former Spouses' Protection Act, 10 U.S.C. § 1408(“USFSPA”), and Mansell,490 U.S. at 583, 109 S.Ct. 2023, preempt the family court's authority to order John to indemnify Sandra for the reduction of her MRP share. Sandra responds, and the court of appeals agreed, that John waived this argument by raising it for the first time on appeal.

¶ 9 Although generally we refuse to consider arguments newly raised on appeal, this is a prudential rule, and we have made exceptions to consider issues of public importance or that are likely to recur. Estate of DeSela v. Prescott Unified School Dist. No. 1,226 Ariz. 387, 389 ¶ 8, 249 P.3d 767, 769 (2011). Such reasons exist here. Also, the federal preemption issue is a legal one and the parties have fully briefed it. For these reasons, we consider John's arguments.

¶ 10 The United States Supreme Court and Congress have each addressed whether state courts can divide MRP and disability benefits in dissolution proceedings. In 1981, the Court held that federal law precludes a state court from dividing MRP because doing so would contradict Congress's intent that veterans have “personal entitlement” to such benefits. McCarty v. McCarty,453 U.S. 210, 223–24, 101 S.Ct. 2728, 69 L.Ed.2d 589 (1981). In response to McCarty,Congress enacted the USFSPA, which allows states to treat “disposable retired or retainer pay ... either as property solely of the member or as property of the member and his spouse in accordance with the law of the jurisdiction of such court.” 10 U.S.C. § 1408(c)(1); see also Edsall v. Superior Court,143 Ariz. 240, 241–42, 693 P.2d 895, 896–97 (1984)(noting that the USFSPA made MRP subject to Arizona's community property laws). A few years later, the Court in Mansellclarified that although the USFSPA permits state courts to divide disposable MRP in a marital dissolution proceeding, it prohibits them from dividing MRP that has been waived to receive disability benefits. Mansell,490 U.S. at 589, 109 S.Ct. 2023.

¶ 11 In the years following Mansell,our court of appeals has several times considered how the family court should proceed when a veteran elects a VA waiver to receive disability benefits afterentry of a dissolution decree, thereby reducing the ex-spouse's share of previously awarded MRP. In Harris v. Harris,195 Ariz. 559, 562 ¶ 13, 991 P.2d 262, 265 (App.1999), for example, the court held that Manselldoes not bar the family court from ordering the veteran to reimburse the ex-spouse for a reduced share of MRP. The court of appeals reached similar conclusions in other cases. SeeDanielson v. Evans,201 Ariz. 401, 407 ¶ 19, 36 P.3d 749, 755 (App.2001); In re Marriage of Gaddis,191 Ariz. 467, 469–70, 957 P.2d 1010, 1012–13 (App.1997). Courts in other jurisdictions have divided on the issue. SeeMark E. Sullivan & Charles R. Raphun, Dividing Military Retired Pay: Disability Payments and the Puzzle of the Parachute Pension,

24 J. Am. Acad. Matrim. Law 147, 158 (2011)(“The large majority of states allow a judge to use equitable remedies to prevent a retiree from effecting a unilateral reduction of [MRP] granted to the other spouse in the settlement or divorce decree.”). But seeMallard v. Burkart,95 So.3d 1264, 1271 (Miss.2012)(disagreeing that a clear majority viewpoint exists).

¶ 12 John argues that the Harrisline of cases, and the family court here, crafted an equitable remedy barred by the USFSPA and Mansell.He quotes Mansell's pronouncement that “the [USFSPA] does not grant state courts the power to treat as property divisible upon divorce military retirement pay that has been waived to receive veterans' disability benefits,” 490 U.S. at 594–95, 109 S.Ct. 2023, and contends that this proscription also applies to post-decree modification proceedings.

¶ 13 We agree that the family court cannot divide MRP that has been waived to obtain disability benefits either at the time of the decree or thereafter. But unlike the situation in Mansell,that did not occur here. Sandra was awarded fifty percent of the MRP years before John unilaterally elected to receive disability pay in lieu of a portion of the MRP. The 2014 Order did not divide the MRP subject to the VA waiver, order John to rescind the waiver, or direct him to pay any amount to Sandra from his disability pay. Under these circumstances, the family court did not violate the USFSPA or Mansellbecause it did not treat the MRP subject to the VA waiver as divisible property.

¶ 14 Although requiring John to reimburse Sandra diminishes the overall income increase he received when he elected the VA waiver (he retains the tax benefits of disability payments), we are not persuaded that the USFSPA prohibits this result. As the MansellCourt recognized, [b]ecause domestic relations are preeminently matters of state law ... Congress, when it passes general legislation, rarely intends to displace state authority in this area.” Mansell,490 U.S. at 587, 109 S.Ct. 2023. The Court will not find federal preemption, therefore, “absent evidence that it is ‘positively required by direct enactment.’ Id.(quoting Hisquierdo v. Hisquierdo,439 U.S. 572, 581, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979)).

¶ 15 Nothing in the USFSPA directly prohibits a state court from ordering a veteran who makes a post-decree VA...

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