Navigating CalPERS Pension Division in Divorce: Model Order A (Separate Account) vs. Model Order B (Shared Interest)
As a QDRO attorney, one of the most frequent questions I receive from clients involving CalPERS pensions is: “What’s the difference between “Model Order B” keeping a shared interest in my ex’s pension versus “Model Order A” segregating my share into a separate account? And which one is better for me?”
It’s a valid question — CalPERS benefits are often a couple’s largest asset, and the wrong choice can mean thousands of dollars lost over a lifetime. California’s community property laws treat pensions earned during marriage as joint assets, but CalPERS offers specific methods for division. The two main options for active or recently separated members not yet receiving their pensions are Model Order A (Separate Account Method) and Model Order B (Time Rule/Shared Interest Method). (Model Order C is similar to B but reserved for already-retired members, with fewer customization options.)
Drawing from CalPERS’ official guidelines and my experience, I’ll break down these options, their pros and cons, and how to decide. If you’re going through a divorce involving CalPERS, understanding this can protect your financial future.
The Foundation: Why CalPERS Pensions Are Divided This Way
Under California law, as established in landmark cases like In re Marriage of Brown (1976), pensions are property rights earned through marital efforts — even if not yet vested. In re Marriage of Judd (1977) introduced the “time rule” for fair apportionment, and In re Marriage of Lehman (1998) confirmed that post-separation enhancements (like pay raises or COLAs) are shared if rooted in marital service.
CalPERS aligns with these principles but provides structured “model orders.” You can’t mix and match — these are mutually exclusive. Importantly, per Family Code §2610(a)(3), the non-member (non-employee) spouse holds the right to choose the method, unless the court decides otherwise. If the member is already retired, only Model C applies.
Model Order A: The Separate Account Method (Account Segregation)
This option, often called “account segregation,” creates a standalone CalPERS account for the non-member spouse by dividing the member’s accumulated service credits and contributions based on the marital period. The non-member gets their proportional share (usually 50% of community credits) transferred into their own account.
How It Works
• Calculation: Service credits during marriage are segregated. The benefit is based on the member’s compensation at the date of judgment for dissolution (or as specified in the order), not future pay.
• Payout: The non-member can “retire” and start receiving benefits independently, as early as age 50 (depending on vesting), without waiting for the member to put in for retirement.
• Options for Non-Member: Choose lifetime of monthly payments or, in some cases, a lump-sum cash-out of contributions plus interest (but not employer matches — typically about 11 cents on the dollar in value). See illustration of this here: https://www.calpers.ca.gov/about/organization/facts-at-a-glance/pension-buck
Pros
• Independence: No reliance on the member’s retirement timing. Ideal if there’s a large age gap, health issues, or if you want control over your benefits sooner.
Cons
• Frozen Benefits: You miss out on post-separation boosts like promotions and pay raises, that could significantly increase the pension’s value. For example, if the member earns 20 years during marriage, your 10 years of credit are valued at dissolution-era pay — not the higher salary at retirement.
• Cash-Out Pitfall: While available, cashing out is rarely advisable (as I often warn clients) unless facing dire circumstances like terminal illness. It forfeits lifetime income for a fraction of the value.
Model Order B: The Time Rule/Shared Interest Method
Here, the non-member doesn’t get a separate account — instead, they receive a percentage of the member’s eventual retirement benefit using the “time rule” formula. This is the “shared interest” approach, allowing the non-member to benefit from the member’s ongoing career.
How It Works
• Calculation: Community share = (Service credits during marriage / Total service credits at retirement) × Member’s benefit at retirement × Awarded percentage (usually 50%).
• Payout: The non-member gets paid directly by CalPERS, but only when the member retires. Benefits include post-separation enhancements like higher pay or early retirement incentives.
• Gillmore Rights: Retained — the non-member can petition the court to force the member to essentially make a choice between (1) retiring so the non-member can receive their share of the pension directly from CalPERS or (2) paying the non-member an equivalent of what the non-member would receive from CalPERS, but from the member’s own pocket, if the member decides to continue to work — until the later retirement of the member when CalPERS will take over the payment responsibility (In re Marriage of Gillmore, 1981).
Pros
• Growth Potential of shared interest: “Piggybacks” on the member’s promotions and raises.
• Equity: Aligns with California’s “marital foundation” theory, that a career has a trajectory of growth that is built upon a foundation; not all promotions and pay raises are based on separate property efforts — some are due to older employees retiring and newer employees taking their place — and both parties should benefit from what grows on the foundation of the career. This can be loosely compared to investments in a 401(k) that grow over time. Retirement vehicles are not “fixed” at the point of divorce — they mature over time.
• Simplicity for Long-Term: No need to value the pension now; CalPERS handles the split at retirement.
Cons
• Dependency: Payments start only when the member retires, which could be delayed.
• Possible future conflicts: If the member wishes to continue working, but the non-member does not want to wait for pension money — a Gillmore action could be filed — returning both parties to court.
Model Order C: A Quick Note for Retired Members
If the member is already retired, Model C applies — it’s essentially the time rule (like B) but for ongoing benefits. The non-member gets a portion of the existing payments immediately. Drafting is straightforward but limited; no segregation option here.
Which Option Is Right for You? Key Factors to Consider
• Age and Health: Segregation (A) if you need benefits soon; shared (B) if you can wait for growth.
• Career Trajectory: If the member expects raises/promotions, shared interest preserves your upside.
• Risk Tolerance: Separate account offers predictability; shared bets on future enhancements.
• Cash-Out Warning: Almost always a bad idea — unless you are dying, avoid trading your pension for pennies.
HOT TIP: If you are unsure what to pick, then pick shared interest (Model Order B). You can always amend your choice in the future and switch from shared interest to account separation. However, the opposite is not true — if you pick account separation, you cannot merge the separated accounts back together in the future. You are stuck with account segregation, and you may regret your choice if your ex later receives significant promotions or pay raises.
Disclaimer: This post is for informational purposes only and is not legal advice. Laws and CalPERS policies can change. Please consult with a qualified attorney for advice specific to your situation.