California teachers’ retirement is community property. CalSTRS was founded in 1913 and is part of the State of California’s Government Operations Agency. The California State Teachers’ Retirement System (CalSTRS) provides retirement, disability and survivor benefits for California teachers and their families.
CalSTRS participants are not eligible for Social Security retirement benefits unless from another job, or from a spouse’s benefits. This is because the CalSTRS participants pay into CalSTRS funds and participants do not pay into Social Security. However, for those teachers who have previously paid into Social Security, the Windfall Elimination Provision may reduce their Social Security benefits. Further, due to the Government Pension Offset, Social Security benefits may also be reduced for those participants who may be entitled benefits from a spouse or as a widower.
So, here is what you want to know. In California, it has been held that the primary Social Security Benefits of an employed spouse is the separate property of that spouse. This is NOT the case however with CalSTRS retirement.
CalSTRS retirement is treated as community property
Upon divorce, CalSTRS retirement is treated as community property – unlike Social Security, which is treated as separate property. What this means is teachers will have to divide their CalSTRS retirement with their spouse, however, the non-participant spouse keeps all of their Social Security.
For example, Husband and Wife have been married for 25 years. During that entire time, Wife, school teacher, has been a participant in CalSTRS. For the same period, Husband pays into Social Security. Husband and Wife agree to divorce.
RESULT: The entire amount Husband paid into Social Security is his separate property. Wife, on the other hand, must divide her CalSTRS with Husband as community property.
This result can be devastating to Wife. She may lose close to half of her retirement in divorce while Husband retains his full Social Security benefits. Consequently, Wife has roughly half of her retirement while Husband has nearly half of Wife’s benefits and all of his own!
So, the question becomes, how does Wife protect herself from losing nearly half of her retirement on divorce? Answer: premarital agreement.
What if at the time of marriage, Wife is not yet a teacher and enters the field mid-marriage? Answer: post-nuptial agreement.
These types of agreements are not something people generally contemplate before or during marriage, but with the devastating consequences that can result from community property division of CalSTRS retirement for the participant, teachers should strongly consider protecting themselves until the injustice of this division of property is resolved either by legislation or the courts.
A case on point is what happened to Jennifer Merkel as reported by the Los Angeles Times in 1999. Jennifer lost a large portion of her CalSTRS pension during divorce. Still, 16 years later, nothing has been done to change a teacher’s retirement from being characterized as community property in California during divorce based on a system founded back in 1913. This issue clearly needs to be revisited by legislators.
Until such time this injustice to our educators is sorted out, teachers in California must be proactive in protecting their retirement through either a prenuptial or post-marital agreement.