NOTICE: NOT FOR OFFICIAL PUBLICATION. 

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL 

AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE 

ARIZONA COURT OF APPEALS

DIVISION ONE

In re the Matter of: 

NORA M. GONZALEZ, Petitioner/Appellee, 

v.

FERNANDO VAZQUEZ ARRELLANO, Respondent/Appellant. 

No. 1 CA-CV 23-0572 FC 

Appeal from the Superior Court in Maricopa County 

No. FC2022-002329 

The Honorable Monica Edelstein, Judge 

VACATED IN PART 

COUNSEL 

Michael L. Gertell LLC., Phoenix 

By Michael L. Gertell, Esq. 

Counsel for Petitioner/Appellee 

The Valley Law Group, PLLC, Phoenix 

By Ryan M. Reppucci 

Counsel for Respondent/Appellant

FILED 05-30-2024
GONZALEZ v. ARRELLANO 

Decision of the Court 

2 

MEMORANDUM DECISION 

Presiding Judge Anni Hill Foster delivered the decision of the Court, in 

which Judge Brian Y. Furuya and Vice Chief Judge Randall M. Howe 

joined. 

F O S T E R, Judge: 

¶1 Appellant Fernando Arrellano (“Husband”) appeals the 

superior court’s decree of dissolution (“Decree”) allocating half of his 

workers’ compensation settlement to Nora Gonzalez (“Wife”) as 

community property. Husband contends that the trial court erred in finding 

that the proceeds from the workers’ compensation settlement awarded to 

him were community property. For the reasons below, this Court vacates a 

portion of the Decree, finding error in the superior court’s determination 

that Husband’s workers’ compensation settlement proceeds were 

community property. 

FACTS AND PROCEDURAL HISTORY

¶2 Husband and Wife married on April 3, 1995. In 2018, 

Husband suffered a workplace injury, prompting him to file a workers’ 

compensation lawsuit. Husband had surgery for his injury and retained 

counsel. Under a contingency agreement, Husband’s legal counsel received 

a monthly fee deducted from Husband’s Social Security Disability 

payments and was to receive a portion of any eventual award. Despite 

being entitled to $1,050 in monthly disability following the injury, Husband 

received a monthly check of $850 directly from his attorney, which was 

utilized to cover household expenses and bills of the community before 

separation. 

¶3 On April 13, 2022, Wife filed a petition for dissolution seeking 

a portion of any workers’ compensation award. The petition was served on 

Husband on July 5, 2022. Subsequently, in March 2023, the workers’ 

compensation lawsuit was settled for a lump sum payment of $160,000. The 

settlement stated that the amount was for future benefits and anticipated 

future medical expenses. Pursuant to the settlement statement, Husband’s 

legal counsel was entitled to 25% of the settlement, totaling $40,000, in 

accordance with the fee agreement. The remaining $120,000 was designated 

for Husband. Wife was not a party to any of the agreements. 
GONZALEZ v. ARRELLANO 

Decision of the Court 

3 

¶4 An evidentiary hearing was held on June 22, 2023, and shortly 

thereafter, the court issued the Decree dissolving the marriage without 

granting spousal maintenance because Husband lacked financial resources. 

Within the Decree, the court determined that neither party established any 

identifiable assets apart from the settlement award stemming from 

Husband’s workers’ compensation lawsuit. The superior court deemed the 

workers’ compensation award a community asset and divided it equally. 

¶5 The court reasoned that by committing the community 

through the retainer agreement, which required a portion of Husband’s 

social security funds for payment, Husband effectively established a 

community debt associated with the lawsuit. Therefore, until the case 

settled, this “debt” remained a community obligation. 

¶6 Furthermore, the court emphasized that the remaining 

$120,000 of the award, after satisfying the community debt, retained its 

characterization as a community asset, regardless of when it was acquired 

after the date of service. Consequently, the court awarded Wife half of the 

proceeds, deducting $1,000.00 as an equalization for the tax refund. 

¶7 Husband moved to alter or amend the judgment, and the 

court denied the motion. Husband timely appealed and this Court has 

jurisdiction under Article 6, Section 9, of the Arizona Constitution, 

A.R.S. § 12-120.21(A)(1), A.R.S. § 12-2101(A). 

DISCUSSION

¶8 Husband argues the trial court erred by not awarding 

Husband 100% of the workers’ compensation settlement proceeds, claiming 

it is his sole and separate property. Wife contends that Husband obligated 

the community through the retainer agreement, thereby creating a 

community debt. “[This Court] appl[ies] an abuse of discretion standard 

when reviewing the superior court’s division of property, but review[s] the 

court’s characterization of property de novo.” Helland v. Helland, 236 Ariz. 

197, 199, ¶ 8 (App. 2014). 

A. The Workers’ Compensation Settlement Proceeds Were Separate 

Property.

¶9 Workers’ compensation is granted to an injured employee as 

a substitute for lost wages, calculated based on the individual’s diminished 

earning capacity throughout the period of disability. Bugh v. Bugh, 125 Ariz. 

190, 192 (App. 1980). Husband argues that the award was for the future and 

was not compensation for past earnings. 
GONZALEZ v. ARRELLANO 

Decision of the Court 

4 

¶10 “Property that is acquired by a spouse after service of a 

petition for dissolution” that results in a dissolution is that spouse’s 

separate property. A.R.S. § 25-213(B). But “service of a petition for 

dissolution of marriage . . . does not . . . [a]lter the status of preexisting 

community property.” A.R.S. § 25-211(B). As a result, payments received 

post-petition are not necessarily separate property. DeFrancesco v. 

DeFrancesco, 248 Ariz. 23, 24, ¶ 5 (App. 2019). 

¶11 Husband cites In re marriage of Cupp, 152 Ariz. 161 (App. 1986) 

to support his argument that the award is his separate property. This Court 

held in that case that worker’s compensation awards, when commuted to a 

lump-sum payment during the marriage, constitute separate property for 

the employee spouse to the extent that it represents loss of earning capacity 

post-divorce. Cupp, 152 Ariz. at 163. Importantly though, in Cupp, a portion 

of the lump sum payment was intended to compensate for lost wages 

during the marriage and was therefore considered community property. Id.

The remaining portion, allocated for future lost wages beyond the marriage, 

was regarded as separate property. Id.

¶12 Wife argues that Husband’s workers’ compensation benefits, 

including the settlement, were community assets to which she was entitled. 

But Wife does not provide any support for this position, only arguing that 

a decision to the contrary would result in gamesmanship. Workers’ 

compensation is not assignable. A.R.S. § 23-1068(A); see also Bugh, 125 Ariz. 

at 193 (stating that workers’ compensation benefits paid after the 

dissolution of a marriage for injuries incurred during the marriage are 

deemed the separate property of the worker after dissolution). For this and 

other reasons explained herein, Wife’s argument fails. 

¶13 Here, Husband received the lump sum settlement following 

the service of dissolution. The calculation of the settlement was forward 

looking from March 2023 onward; it was not for past wages because the 

workers’ compensation settlement aimed to address Husband’s projected 

lost earnings in the future. Husband had already been compensated for any 

loss in past wages. For these reasons, the resulting proceeds should have 

been classified as Husband’s sole and separate property. 

¶14 Thus, the court’s ruling that the proceeds from the workers’ 

compensation settlement were community property was erroneous. 

B. The Retainer Contract Was Not a Community Debt 

¶15 Wife argues that Husband obligated the community through 

the retainer agreement by using his disability funds. Under Arizona law, 
GONZALEZ v. ARRELLANO 

Decision of the Court 

5 

property acquired during the marriage is typically presumed to be 

community property, while property acquired after the service of a petition 

for dissolution is presumed to be separate property. A.R.S. § 25–211(A). But 

this Court previously rejected the argument that the source of disability 

benefits establishes its nature: 

Although the entitlement to [government disability] 

benefit[s] may be attributed to employment and thus have a 

community origin, the money so expended does not produce 

a community asset subject to division at dissolution. What it 

produces is coverage for the individual spouse against the 

risk of disability and loss of future earning ability. . . . [P]ostdissolution disability benefits are separate property. 

In re Marriage of Kosko, 125 Ariz. 517, 518 (App. 1980). And contrary to the 

superior court’s conclusion, Social Security disability payments received by 

Husband and utilized to retain counsel are Husband’s separate property. 

See McNeel v. McNeel, 169 Ariz. 213, 214 (App. 1991) (“Disability benefits are 

the separate property of the spouse suffering the disability. This rule results 

from conceptualizing the disabled spouse’s body as his or her separate 

property, brought to the marriage by that spouse.” (internal citations 

omitted)); Luna v. Luna, 125 Ariz. 120, 123 (App. 1979) (“[T]he Social 

Security disability benefits received by petitioner are his separate property 

and no offsetting award can be made to respondent/appellee.”). 

¶16 Husband’s separate property—his disability payments—

were used to pay for the retainer agreement, which did not create a debt to 

the community. And regardless of how Husband secured his disability 

settlement, it is personal to him because it results from his own injuries and 

the payment entirely represents post-dissolution wages and medical 

expenses. 

¶17 Though the superior court cited In re Marriage of Flower, 223 

Ariz. 531, 537–38, ¶¶ 24–29 (App. 2010), which held unequal division of 

property was appropriate because the parties incurred substantial 

community debt to benefit one spouse’s separate property, that case is 

irrelevant here. That case applies only to dividing community assets. As 

noted, Husband’s disability settlement—which is comprised of funds to 

settle Husband’s workers’ compensation claim for injuries personal to him 

and intended to cover medical expenses and lost wages that are entirely 

prospective, post-dissolution—is Husband’s separate property. See Kosko, 

125 Ariz. at 518. Thus, Husband’s disability settlement is not subject to 

equitable division at all, and In re Marriage of Flower is inapposite.
GONZALEZ v. ARRELLANO 

Decision of the Court 

6 

¶18 Wife’s contention that Husband obligated the community 

through the retainer agreement, necessitating a portion of the social security 

funds, parallels the misconceptions addressed in Helland. In Helland, the 

court clarified the nature of a disability policy, emphasizing that while 

contractual, such policies lack the characteristics of traditional investments 

due to the contingent nature of disability benefits. 236 Ariz. at 200, ¶ 12. 

Consequently, the community does not acquire rights to future disability 

benefit payments upon policy purchase. Id.

¶19 Although Helland focused on disability policy acquisition, the 

analysis is consistent with a contract that uses social security disability 

payments for retaining counsel, as in the present case. Here, Husband 

secured legal representation for his workers’ compensation suit through 

use of his monthly disability benefits. Wife was neither bound by the 

contract, which was entered using separate funds, nor did she contribute 

funds to support the endeavor. Furthermore, no guaranteed return existed, 

given the ongoing negotiations regarding the workers’ compensation claim 

and Husband’s obligation to demonstrate eligibility for payment. 

Therefore, the court erred by finding that the retainer contract created a 

community debt thereby creating a community asset from the workers’ 

compensation settlement proceeds. 

CONCLUSION 

¶20 The portion of the decree that held Husband’s workers’ 

compensation settlement was community property is vacated. Both parties 

request attorneys’ fees and costs under Arizona Rule of Civil Appellate 

Procedure 21 (“Rule 21”) and A.R.S. § 25-324. After considering the 

financial resources of both parties, the requests for attorneys’ fees are 

denied. A.R.S. § 25-324(A). Pursuant to A.R.S. § 12-341, Husband is 

awarded his costs following compliance with Rule 21.