Is Accrued Vacation Pay Community Property? AZ Court of Appeals Says: It Depends!

Category: Family Law

In an Arizona Court of Appeals case argued by DMMG attorney Spencer Schiefer, the court clarified whether accrued vacation pay is community property.

As an Arizona State Bar Certified Specialist in family law matters in Arizona, I wrote in one of my prior blog articles that the Court may be able to treat accrued vacation pay as a community asset.  However, I pointed out at that time that the issue had not yet been decided by the Courts in Arizona, and that Arizona Law did not provide any specific guidance.

One of the benefits of law is that it is always changing and always updating.  In a recent opinion issued by the Arizona Court of Appeals, the Court clarified everything stating that it depends:

We hold that the accrued vacation pay constituted community property if it was reimbursable (making it a form of deferred compensation). But if the vacation pay was not reimbursable (making it merely a form of replacement wages that could be used during or after the marriage), then it constituted the employee spouse’s separate property.

In other words, if a spouse in a divorce has the ability to turn in X hours of vacation pay and be paid for returning such hours, this would be considered compensation and is a divisible asset.  This would be similar to money in a retirement account earned during the marriage or stock options being earned during the marriage, as being community property and therefore divisible.

On the other hand, if the vacation pay is “use it or lose it” and can only be used to replace lost income from not attending work, then such vacation pay is essentially a replacement of future wages.  In Arizona law, wages after the date of service belong to the person earning the wages.  As such, the replacement for such wages post date of service would also be sole and separate property, even if they were accumulated or earned during the marriage.  This would be like paying for disability insurance during the marriage, but then the disability occurs after the marriage.  Just because it was paid during the marriage does not make the future income (or disability replacement income) a community asset.

The laws in Arizona are complicated, and ever changing and updating.  If you are involved in a divorce, legal separation, or annulment case or other family law case, and if you have determined that you need experienced legal representation, please call 480 733-6800 and ask to speak with Douglas C. Gardner, or visit our website at: