CalPERS Divorce: Everything You Need To Know

• Key facts about CalPERS
• Four things to consider in a CalPERS divorce
• How do CalPERS pension plans get divided?
• What you should know about a QDRO
• How to prepare & file a CalPERS claim
• Getting help with your CalPERS claim
• References

California's public employees' retirement system, or CalPERS, benefits are open to anyone who has worked for the state for at least six months and one day. If you held a job like this at least half-time, you likely accrued benefits. And if you get divorced, the funds you earned during your marriage are community property.

California's divorce laws are complicated, so you may choose to work with a CDFA or lawyer when you have questions about big assets. Divorce can have a deep impact on your retirement savings, and in most cases, these aren't obligations you can shrug off. 

Key facts about CalPERS 

1.  CalPERS is America's largest public pension fund, serving more than 2 million people via the retirement system alone. 
2.  In the fiscal year 2021-2022, CalPERS's operating budget was more than $1,897 million. 
3.  At the end of June 2022, CalPERS assets stood at $440 billion.
4.  Close to 60% of all retirees get less than $3,000 per month in benefits. 

4 things to consider in a CalPERS divorce 

Per California law, retirement accounts are community property in a divorce. Just as couples must determine who owns the house and car when they split, they must decide how to divvy up CalPERS retirement benefits. 

Here are four things you should know before you get started: 

1. Domestic partnerships are different

California recognizes domestic partnerships, and many couples use divorce paperwork to split their assets when their partnerships end. CalPERS is different. In some cases, beneficiary partners won't see any money until their former spouse experiences a "qualifying event," such as these:

• Refund
• Retirement
• Death

If partners get a benefit, the income is taxable per the Internal Revenue Service, and excise taxes may be levied too. 

Because these arrangements are complex, CalPERS recommends that couples consult CDFAs or other financial experts before they get started. 

2. Some couples don't split CalPERS benefits

While retirement accounts are community property, couples can distribute their estate creatively during a divorce. One party might leave the CalPERS benefits in place in return for the following:

• A smaller share of communal debt
• Independent access to a private retirement account (like an IRA)
• The family home 

If you and your spouse agree to these alternate plans, you don't need to give CalPERS the details. But you should outline your agreement in marital settlement agreements, so one party can't ask for access later on. 

3. Payments during divorce are small (or nonexistent)

Money can be tight during a divorce, and it's tempting to retire and get CalPERS benefits to fill the gap. This model could be especially enticing to people who aren't working in a CalPERS position but have retirement benefits available. Double-dipping like this could earn you extra cash.

Unfortunately, CalPERS won't release any benefits until your divorce claim is processed. Officials need to understand how much money is truly yours. Until they do, they won't release payments in response to a new retirement application. 

If you're already retired, CalPERS can hold one-half of your retirement allowance back until the claim is resolved. If you keep your entire account after the divorce, you'll get missing payments back with interest. 

4. CalPERS staff can't offer advice

Pension plans are tightly regulated, and staff can experience severe consequences for offering legal advice. You can contact the office to ask about forms and procedures, but you can't ask anyone there for help with any of the following:

• How much money you’re entitled to
• Which CalPERS division plan is right for you
• Whether you should stop fighting for your share

A lawyer or accountant can answer these questions, but CalPERS staff absolutely cannot. 

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How do CalPERS pension plans get divided?

Three main CalPERS division options exist, and they're all slightly different. Understanding how they work could help you choose the model that's right for you and your divorce. 

Model Order A

This division model is also known as a Separation of Account. The beneficiary's account is divided per court order, and both parties can withdraw their amount or leave it in place and retire with accrued funds later. 

This model is only available to non-retired CalPERS members, and plenty of math is involved. Couples must understand how long they were married, how many CalPERS "credits" the person earned during the marriage, and how much they contributed. Lawyers and accountants can help with this. 

Model Order B

This division model is also known as Future Division. Experts determine what percentage of a member's future benefit will be paid to the other party. If the percentage estimates get too messy, courts can award a specific dollar amount instead. 

This model is only available to non-retired CalPERS members, and the same math involving credits earned and money contributed during the marriage applies. 

Model Order C

This division model is also known as the Time Rule Method, and it's only available to retired CalPERS members. Experts will determine what percentage of the member's current retirement allowance will go to the former spouse instead. Some courts use a flat fee to settle disagreements, but others stick with percentages. 

What you should know about a QDRO

As part of your final divorce arrangements, you’ll file paperwork with the court about how retirement funds will be distributed. As part of those plans, you’ll submit Qualified Domestic Relations Orders (QDROs). 

CalPERS has sample QDROs you can examine, but no formal template exists. If you’re hoping to grab a piece of your partner’s funds, you should ask a lawyer to draft a QDRO for you, and there are fees involved. You can work with your partner to decide who should pay these fees. 

When your QDRO is complete, you will send it to CalPERS officials to review. Typically, officials from CalPERS sign that document and hand it back. 

How to prepare & file a CalPERS claim 

It takes about 60 days for CalPERS to review paperwork, make adjustments, and release funds. The longer you wait to start the process, the longer you'll wait to get your money. But know that the process is complicated, so you’ll need guidance along the way. 

California courts recommend couples hire lawyers when their divorces involve pension or retirement plans. Without professional help, the process can just be too complex for the average person.

A typical CalPERS claim works like this:

1.  Notify: The non-member spouse tells CalPERS about a claim to a retirement account. CalPERS recommends submitting draft QDROs, as some courts require a CalPERS signature before final divorce decrees are issued. If you don't send CalPERS your documents to sign, your divorce could get held up as your QDRO won't be accepted. 
2.  Review: CalPERS officials need 60 days to review the proposed QDRO. If they are acceptable, officials will either sign your forms or tell you they're ready to file. 
3.  File: Submit your final settlement documents to the court handling your divorce, and include your QDRO. 
4.  Payment: If you’ve handled all the steps properly, payments will either come immediately, or the non-member spouse will have a new CalPERS retirement account accruing interest. 

Withdrawing money could impact your taxes, especially if you’re not of legal retirement age. Talk with your attorney or accountant before you dip into those funds to make sure you don’t face any surprises come tax time. 

Getting help with your CalPERS claim

CalPERS distributions are complicated, and since the office is so busy, any mistakes can hold up your case for months. In general, it's best to work with an attorney to handle these cases. They can protect you throughout the process. 

You can also look for ways to distribute other assets equally, so the member spouse retains exclusive access to retirement funds. 

You can contact CalPERS with questions at 888-CalPERS. If you're already a member, you can log into myCalPERS with questions and concerns.

References