                                IN THE

    SUPREME COURT OF THE STATE OF ARIZONA
                        IN RE THE MARRIAGE OF:

                            DIANE MERRILL,
                           Petitioner/Appellee,

                                    v.

                      ROBERT KENNETH MERRILL,
                        Respondent/Appellant.

                          No. CV-15-0028-PR
                        Filed December 15, 2015

          Appeal from the Superior Court in Maricopa County
               The Honorable Paul J. McMurdie, Judge
                         No. DR1991-092542

     Memorandum Decision of the Court of Appeals, Division One
                        1 CA-CV 13-0649
                       Filed Dec. 18, 2014
              Amended Per Order Filed Jan. 7, 2015
                VACATED AND REMANDED

COUNSEL:

James S. Osborn Popp (argued), Popp Law Firm, PLC, Tempe, for Diane
Merrill

Keith Berkshire (argued), Maxwell Mahoney, Berkshire Law Office PLLC,
Phoenix, for Robert Kenneth Merrill


JUSTICE TIMMER authored the opinion of the Court, in which CHIEF
JUSTICE BALES, VICE CHIEF JUSTICE PELANDER and JUSTICES
BRUTINEL and BERCH (RETIRED) joined.

JUSTICE TIMMER, opinion of the Court:

¶1           Federal law prohibits courts in marital dissolution
proceedings from dividing any portion of military retirement pay (“MRP”)
                           MERRILL V. MERRILL
                           Opinion of the Court

waived by a retired veteran to receive Combat-Related Special
Compensation (“CRSC”) benefits pursuant to 10 U.S.C. § 1413a. Arizona
law prohibits courts from “making up” for the resulting reduction in MRP
by awarding additional assets to the non-military ex-spouse. A.R.S. § 25-
318.01. We recently held that neither federal law nor § 25-318.01 precludes
the family court from ordering a retired veteran to indemnify an ex-spouse
for a reduction in the latter’s share of MRP caused by a post-decree waiver
of MRP made to obtain Department of Veterans Affairs (“VA”) disability
benefits pursuant to 38 U.S.C. chapter 11. In re Marriage of Howell, No. CV-
15-0030-PR, slip op. at *9 ¶ 25 (Ariz. Dec. 2, 2015). For the reasons set forth
in Howell, we hold that § 25-318.01 likewise cannot apply to preclude
indemnification when a retired veteran makes a post-decree waiver of MRP
to obtain CRSC benefits and the decree was entered before § 25-318.01’s
effective date.

                            I. BACKGROUND

¶2            Robert Merrill and Diane Merrill married in 1963 and
divorced in 1993. Robert was injured in combat while serving with the
Army in Vietnam. He retired from the Army in 1983 and went to work in
the private sector. At the time of the divorce, Robert received MRP and VA
disability benefits based on a disability rating of 18.62 percent. The family
court did not divide Robert’s disability benefits but awarded each party
“one-half” of the MRP as their sole and separate property and issued a
qualified domestic relations order to implement that award.

¶3             After the parties’ divorce, Robert became unemployable due
to his disabilities. Thus, in 2004, the VA changed Robert’s disability rating
to 100 percent and found him eligible to receive CRSC. The CRSC program
permits some veterans injured in combat to waive a portion of their
“disposable” MRP for an equal amount of tax-free CRSC. See 10 U.S.C.
§ 1413a. Federal law prohibits courts from treating CRSC as community
property. See 10 U.S.C. § 1408(c)(1) (authorizing a state court to treat only
“disposable retired pay” as community property); § 1413a(g) (“Payments
under this section are not retired pay.”). Robert waived a significant
portion of MRP to receive CRSC and, as a result, Diane’s monthly share of
MRP from 2004 onward decreased dramatically. In 2010, for example,
Diane’s monthly share of MRP was reduced from $1,116 to $133.



                                      2
                           MERRILL V. MERRILL
                           Opinion of the Court

¶4            In 2010, Diane petitioned the family court to award her
arrearages for her reduced share of MRP and to compensate her for future
reduced payments of MRP. The family court denied Diane’s petition,
reasoning that § 25-318.01 proscribes the requested relief.

¶5            The court of appeals reversed, holding that § 25-318.01
applies only to VA disability benefits awarded pursuant to 38 U.S.C.
chapter 11, not to CRSC awarded pursuant to 10 U.S.C. § 1413a. Merrill v.
Merrill, 230 Ariz. 369, 375 ¶ 25, 284 P.3d 880, 886 (App. 2012) (“Merrill I”).
The court applied long-standing case law to conclude that Robert must
indemnify Diane against her loss of MRP. Id. at 373 ¶ 13, 284 P.3d at 884. It
remanded for the family court to determine whether Robert could
indemnify Diane from his non-exempt assets. Id. at 377 ¶ 30, 284 P.3d at
888.

¶6           On remand, the family court awarded Diane $128,574.35 in
MRP arrearages accrued through July 2013 to be paid by Robert “from any
and all non-exempt income and assets” (the “2013 Order”). It also ordered
Robert to pay Diane $1,486.50, subject to cost of living adjustments, each
month starting August 2013 from “non-exempt income and assets.”

¶7            Robert appealed, arguing that the family court did not
determine whether he could indemnify Diane from his non-exempt assets,
as Merrill I required. In 2014, while Robert’s appeal was pending, the
legislature amended § 25-318.01 to make it applicable to CRSC benefits. See
H.B. 2514, 51st Leg., 2d Reg. Sess. (Ariz. 2014). The legislature expressly
made the amendment retroactive to July 28, 2010, one day before the
original version’s effective date. On Robert’s motion, and without
addressing the issues raised on appeal, the court of appeals vacated the 2013
Order, recognized that portions of Merrill I had been superseded by the
2014 amendment to § 25-318.01, and deemed Diane’s 2010 petition denied.
Merrill v. Merrill, 1 CA-CV 13-0649 (Ariz. App. Dec. 18, 2014, revised Jan. 7,
2015) (mem. decision).

¶8             We granted review because the application of § 25-318.01 is
an issue of statewide importance. We have jurisdiction pursuant to article
6, section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.

                             II. DISCUSSION


                                      3
                           MERRILL V. MERRILL
                           Opinion of the Court

              A. Applicability of § 25-318.01

¶9            Section 25-318.01 provides:

       In making a disposition of property pursuant to § 25-318 or
       § 25-327, a court shall not do any of the following:

       1.    Consider any federal disability benefits awarded to a
       veteran for service-connected disabilities pursuant to 10
       United States Code section 1413a or 38 United States Code
       chapter 11.

       2.     Indemnify the veteran’s spouse or former spouse for
       any prejudgment or postjudgment waiver or reduction in
       military retired or retainer pay related to the receipt of the
       disability benefits.

       3.     Award any other income or property of the veteran to
       the veteran’s spouse or former spouse for any prejudgment or
       postjudgment waiver or reduction in military retired or
       retainer pay related to the receipt of the disability benefits.

¶10            Diane argues that the court of appeals erred by applying § 25-
318.01 because that statute only applies to an original disposition of
property made pursuant to § 25-318 and to a modification or revocation
made pursuant to § 25-327. Because she sought to enforce the original
disposition rather than modify it, Diane contends that § 25-318.01 does not
apply to her petition or the resulting 2013 Order. See Howell, slip op. at *6–
7 ¶ 17 (noting that “§ 25-318.01 applies only to property dispositions made
pursuant to §§ 25-318 and -327” and does not “restrict[] the family court’s
ability to enforce a disposition order”).

¶11           We rejected a similar argument in Howell. Like the non-
military ex-spouse in that case, Diane sought to redress the reduction in her
share of MRP caused by Robert’s election to receive CRSC benefits. Because
the original decree did not require Robert to indemnify Diane for her loss
of MRP, the family court necessarily modified the decree’s property
disposition terms. Consequently, as in Howell, the family court modified
the original property disposition terms pursuant to § 25-327(A), and
therefore § 25-318.01 applies.

                                      4
                           MERRILL V. MERRILL
                           Opinion of the Court


              B. Application to vested property rights

¶12            Diane argues that she obtained a vested property right in her
share of MRP when the family court entered the decree in 1993, and due
process considerations prohibit a court from applying § 25-318.01 to impair
that right. Robert counters that Diane waived this argument by failing to
comply with A.R.S. § 12-1841. He alternately argues that any vested right
is in fifty percent of whatever amount of MRP is paid each month. He
asserts that because Diane still receives fifty percent of the MRP paid
monthly, albeit greatly reduced in amount, application of § 25-318.01
would not diminish any vested right.

¶13            We reject Robert’s waiver argument. Section 12-1841(A)
requires a litigant to serve the attorney general, the speaker of the house of
representatives, and the president of the senate with any document alleging
that a state statute is unconstitutional. A litigant does not waive a
challenge, however, by failing to comply with § 12-1841. The consequence
for noncompliance is that an unserved official can move to vacate any
finding of unconstitutionality, and the court must give the official a
reasonable opportunity to be heard. A.R.S. § 12-1841(C). Also, if a court
discovers that a party failed to comply with § 12-1841, the court can require
compliance before addressing the constitutionality of a statute. See, e.g.,
Arrett v. Bower, 237 Ariz. 74, 79 ¶ 15, 345 P.3d 129, 134 (App. 2015)
(permitting the secretary of state to intervene to defend the constitutionality
of a statute); Grammatico v. Indus. Comm'n, 208 Ariz. 10, 12 ¶ 5 n.3, 90 P.3d
211, 213 n.3 (App. 2004) (providing the attorney general an opportunity to
address constitutional challenge to a statute), aff’d 211 Ariz. 67, 117 P.3d 786
(2005).

¶14            Compliance with § 12-1841 is not required in this case. Diane
does not assert that § 25-318.01 is facially unconstitutional. Rather, she
argues that the provision as applied works an unconstitutional deprivation.
No Arizona court has decided whether § 12-1841 addresses “as-applied”
constitutional challenges. See DeVries v. State, 219 Ariz. 314, 321 ¶ 21 n.11,
198 P.3d 580, 587 n.11 (App. 2008) (declining to address the issue). And
courts outside Arizona are split on the issue. Compare, e.g., Kepple v. Fairman
Drilling Co., 615 A.2d 1298, 1303 n.3 (Pa. 1992) (noting that notice to attorney
general is not required when contending statute is unconstitutional as


                                       5
                           MERRILL V. MERRILL
                           Opinion of the Court

applied), with Lazo v. Bd. of Cnty. Comm’rs of Bernalillo Cnty., 690 P.2d 1029,
1031–32 (N.M. 1984) (taking the opposite view).

¶15            We are persuaded that § 12-1841 applies only when a litigant
asserts that a statute is facially unconstitutional. The purpose of § 12-1841’s
notice requirement is “to protect the state and its citizens should the parties
be indifferent to the outcome of the litigation.” Ethington v. Wright, 66 Ariz.
382, 388, 189 P.2d 209, 213 (1948). With an as-applied challenge, there is no
risk that a statute will be declared unconstitutional for all applications, and
the party urging application of the statute is motivated to vigorously
defend its constitutionality. Because Diane only challenges the application
of § 25-318.01 to her circumstances and not for all applications, she was not
required to comply with § 12-1841’s notice requirement.

¶16           We next consider whether the court of appeals correctly
applied § 25-318.01 to dismiss Diane’s petition. We resolve this issue as we
did in Howell. There, we concluded that prior to § 25-381.01’s enactment,
Mrs. Howell, the non-military ex-spouse, “had a vested right to receive
future distributions of her share of MRP unencumbered by any adjustments
initiated by [Mr. Howell].” Howell, slip op. at *8 ¶ 21. We held that the due
process guarantee set forth in article 2, section 4 of our constitution,
prohibits application of § 25-318.01 in that circumstance to preclude the
family court from entering an indemnification order. Id. at *9 ¶¶ 23–24.
Because Diane’s rights in her share of MRP vested before the effective date
of the amendment to § 25-318.01, that provision cannot apply to prevent the
family court from fashioning an order to redress the reduction in MRP
caused by Robert’s election to receive CRSC benefits. The court of appeals
erred by concluding otherwise.

                            III. CONCLUSION

¶17           Section 25-318.01 cannot be applied to prohibit the family
court from entering an indemnification order to compensate a non-military
ex-spouse for a reduction in a share of MRP caused by a veteran’s election
to receive CRSC benefits when that share was awarded in a decree entered
before the statute’s effective date. We vacate the court of appeals’ decision
and remand to that court to address the arguments raised by Robert on
appeal. Finally, we deny Diane’s request for attorneys’ fees without
prejudice to the court of appeals considering the request after the issues on
appeal are decided on remand.

                                      6
