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How Can You Divide a CalSTRS Pension Plan in a Divorce?

Posted by Lee Zavatsky | Sep 21, 2022

The California State Teachers Retirement System (CalSTRS) provides retirement, disability, and survivor benefits to teachers and their families. The eligible beneficiaries include vested teachers that served in the various school districts, community colleges, and administrative offices.

A spouse's CalSTRS pension benefits are considered community property if initiated during a marriage. In other words, in a divorce, anyone with a CalSTRS pension has to divide it with their spouse unless there is a prior agreement, such as a prenuptial or postnuptial agreement.

How Can You Divide a CalSTRS Pension Plan in a Divorce?
CalSTRS pension benefits are community property.

CalSTRS has three retirement plans, including the Defined Benefit Program, where employees receive lifetime benefits based on years of service credit, final compensation, and age.

There is also the Defined Benefit Supplement that provides employees additional funds after retirement, and the Cash Balance Plan that allows retired part-time teachers to choose a receive a lump-sum payment of their account balance if it is greater than $3500, or they have the option to roll it over into another retirement account.

The CalSTRS benefit program provides a guaranteed lifetime monthly benefit determined by a formula instead of contributions. Employers and members share funding through deductions from their paychecks.

These retirement plans require employee contributions, but the payout options depend on various factors. Retirement and pension plans, including CalSTRS, are often the most significant asset to divide in a divorce.  Our California family law attorneys will provide more helpful information below.

Dividing CalSTRS Retirement Benefits Between Spouses

If you are getting a California divorce, both spouses must follow a specific process to join the CalSTRS pension. Once you join, then divorcing couples can finalize dividing the retirement.

After the divorce petition is filed, they must serve CalSTRS with legal documents showing a spouse is making a claim they have a community property interest in a CalSTRS pension, which is commonly called a “joinder,” which:

  • Officially makes CalSTRS a party in the divorce proceedings,
  • They have 30 days to file a response to this joinder, and
  • The joinder puts a legal hold on the retirement account.

Thus, CalSTRS members cannot make account changes, such as designating beneficiaries. There are two standard formulas are used to divide a CalSTRS benefit account.

Dividing CalSTRS Retirement Benefits Between Spouses
There is a process to join the CalSTRS pension.

The “segregation method” is used by members who divorce before receiving a retirement or disability benefit. The non-member spouse will receive one-half of the member's service credit and contributions starting from the date of the marriage to the date of the separation and will have access to the lifetime monthly benefit after they reach the age of 55.

The “time order rule” is used by members who divorce while receiving a retirement or disability benefit.  The non-member spouse will receive a percentage of the member's monthly benefit, which CalSTRS calculates based on the service credit earned while married. The non-member spouse will receive their benefit once the member spouse retires.

CalSTRS member spouses won't receive Social Security after reaching the age of eligibility. They didn't pay into to program while working as a teacher, but they could have vested into the program before or after working as a teacher. However, the non-teacher spouse will receive their Social Security benefits.

What Are the Other Options for Dividing Benefits?

Typically, retirement accounts considered community or marital property are divided equally among spouses in a California divorce, but other options exist.

After the decision is made to divide the account in divorce, the family court order will usually address all of the member benefits, including:

  • service retirement,
  • disability benefit,
  • disability retirement, and
  • lump-sum death benefits.

Spouses can make a mutual agreement to handle dividing the assets by offsetting the CalSTRS retirement accounts with other assets.

However, before reaching such an agreement, spouses must first understand how their retirement benefits could be affected. When attempting to offset in a divorce, the retirement accounts need to be valued so both spouses can determine what other assets can be awarded to the non-member spouse.

Dividing Retirements Benefits in a California Divorce
There are options for dividing a retirement account.

The cash value listed on the annual statement is not a correct, current value in the context of using it during divorce proceedings to offset assets. You will need to obtain a present value of the CalSTRS benefits, which is crucial because the benefits will pay out for the recipient's lifetime.

The estimated benefit needs to be calculated using the correct plan formula discussed above to determine the actual present value of future benefit payments using numerous assumptions.

For cash balance plans, members getting divorced before receiving their retirement benefits must use the segregation method. Anyone getting divorced while already receiving a cash balance retirement has to divide it by assigning a community property interest of a specific percentage amount.

The segregation method will divide the member's CalSTRS account into two separate individual accounts. When the time rule formula is used, the California family court has to deal with specific issues such as what will happen if the member dies before the nonmember spouse and lump-sum death benefits.

California's rules allow a former spouse to force a member spouse to pay them a monthly amount before they retire, which is called a "Gillmore election."

What is a Qualified Domestic Relations Order (QDRQ)?

A QDRO is a court order instructing the CalSTRS retirement plan administrator to divide a member's retirement plan. It's a separate legal document filed with the family courts before or after the divorce judgment was issued.

Qualified Domestic Relations Order
A California qualified domestic relations order.

CalSTRS will require a copy of the divorce or legal separation decree along with the QDRO to process the dividing of the benefits. You should determine the terms of the QDRO during the divorce process by drafting an outline and reviewed by CalSTRS before the divorce has been finalized.

QDROs usually are prepared by experts who specialize in their preparation rather than a divorce lawyer.

Readers should note that while the family court could grant a dissolution for the marriage that includes the order to divide the qualified retirement accounts, the actual division will not occur until the QDRO is ordered by the family court and processed by the CalSTRS administrator.

If you need legal representation in a divorce with a CalSTRS member, contact us to discuss the legal options.

Furman & Zavatsky are Los Angeles family law lawyers that provide legal representation across the state. We offer a free case evaluation via phone or use the contact form.

About the Author

Lee Zavatsky

Lee Zavatsky is a partner at Furman & Zavatsky, a law firm dedicated to the practice of Family Law. Mr. Zavatsky has been selected as one of the Top 40 Under 40 by The National Trial Lawyers, a professional organization composed of the top trial lawyers from each state or region who are under the...

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