Van Loan Formula Arizona Pension Division

Why Pensions Need a Special Formula

Dividing a 401(k) is relatively straightforward — the account has a balance, and you split it. Pensions are different. A defined-benefit pension promises a monthly payment at retirement based on years of service and salary. There's no lump sum sitting in an account to divide. So how do you split a future income stream?

Arizona courts use the Van Loan time-rule formula to determine the community's share.

The Van Loan Time-Rule Formula

Community Share = (Months of Marriage During Plan Participation ÷ Total Months of Plan Participation) × 50%

The formula calculates the percentage of the pension earned during the marriage and then splits that portion equally between the spouses. The key variables:

Months of marriage during plan participation. Count from whichever is later — the date of marriage or the date the employee joined the pension plan — through the date of service of the divorce petition.

Total months of plan participation. Count from the date the employee joined the pension plan through the date they eventually retire and begin receiving benefits.

Because the denominator (total months) keeps growing until retirement, the community share shrinks if the employee works many more years after the divorce. A 15-year marriage with 15 years of service at divorce and 30 total years at retirement yields a community share of 15/30 × 50% = 25%. But if the employee retires after only 20 total years, the community share is 15/20 × 50% = 37.5%.

How the Non-Employee Spouse Gets Paid

Ordinarily, under the shared payment method, the non-employee spouse receives payments when the employee retires. When retirement payments begin, the plan administrator pays the alternate payee their calculated percentage of each monthly benefit directly.

This means the alternate payee's financial timeline is tied to when the employee retires — which creates a problem.

The Koelsch Rule

What happens if the employee spouse is eligible to retire but deliberately keeps working to delay payments to their ex? Arizona courts addressed this in Koelsch v. Koelsch. The rule prevents the working spouse from unreasonably delaying the alternate payee's benefits by continuing to work past their earliest retirement eligibility date.

Under the Koelsch rule, if the pension has matured (the employee is eligible to retire), the non-employee spouse can petition the court to begin receiving their share based on the benefit the employee would receive if they retired immediately — even though the employee is still working.

ASRS and Government Plans

For Arizona State Retirement System members — teachers, state employees, corrections officers — the pension division requires a specialized Domestic Relations Order (DRO) under A.R.S. § 38-773, not a standard QDRO.

ASRS has specific administrative requirements:

• The DRO must use ASRS-approved language and reference the member's specific plan
• Under A.R.S. § 38-773(D)(1), divorce automatically removes the ex-spouse as designated beneficiary — the member must file a new beneficiary form if the decree requires them to keep the ex as beneficiary
• Submit the DRO early and follow ASRS's current administrative requirements

Military Pensions and the 10/10 Rule

Dividing military retirement benefits adds a federal layer. The Defense Finance and Accounting Service (DFAS) will pay the non-military spouse their share directly only if the marriage lasted at least 10 years, during which the service member performed at least 10 years of creditable military service.

If the 10/10 requirement isn't met, the state court can still order the military spouse to pay their ex's share — but the military spouse must make those payments personally. DFAS won't process a direct payment to the alternate payee.

The Survivor Benefit Plan (SBP) adds another consideration. If the alternate payee is named under the SBP, they continue to receive a portion of the pension even after the service member dies. Without SBP coverage, benefits end at the member's death.

Present Value vs. Shared Payment

The Van Loan formula is used for the shared payment method — dividing the future income stream. But some couples prefer a clean break. The alternative is the present value method: an actuary calculates the current dollar value of the community's share of the pension, and the pension owner keeps the entire pension while the non-employee spouse receives equivalent value from other community assets.

This trades a guaranteed future income stream for a lump-sum equivalent now. The tradeoff depends on the alternate payee's age, the pension's size, interest rates used by the actuary, and each spouse's financial needs.

Calculating Your Share

The Arizona Divorce Financial Split Guide includes a pension division worksheet that walks you through the Van Loan formula with your specific dates and helps you organize the documentation a QDRO specialist will need.

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