Division of Assets & Property in a Colorado Divorce
Division of Assets
Most couple’s do not enter a marriage thinking about the possibility of divorce. They do not think about how to best protect themselves or their personal property when the excitement of newlywed cohabitation begins. Should you open a joint bank account but keep your own? Should I put my new spouse on the deed of my house, the title of my car or my retirement account? Questions like these are rarely asked. This is why, when a marriage doesn’t work and the divorce proceedings begin, the dividing of marital assets can become the most heart-wrenchingly contentious part of a divorce.
Division of assets/property can occur in a variety of settings from divorce, legal separation, dissolution of a civil union or annulment. Marital property is divided equitably in Colorado, without regard to marital misconduct. Colorado is a “no-fault” state and the courts do not consider who may be at fault when deciding how to divide marital assets. In other words, the courts do not care why a marriage failed, their sole aim is to make the divorce as fair to both parties as possible. With that being said, the court will consider “special circumstances” such as criminal history or incarceration.
Separate vs. Marital Property
When courts talk about assets and property, they are usually referring to tangible or intangible property. This can refer to an item you own, that may or may not have physical substance. Before dividing assets, the court must first decide what is marital and what is separate property.
Marital property is any asset or debt acquired by either spouse during marriage, such as: houses, cars, appliances, furniture, jewelry, bank accounts, pensions, retirement plans (including military), IRA’s, bonds, stocks, tax liability, credit card debt, student loans, etc.
Separate property is any asset that was owned prior to a marriage or acquired during the marriage as a gift or inheritance.
Examples of things which are not defined as property and thus not subject to division: an educational degree, workers’ compensation for future lost wages after a decree, income from a discretionary trust, severance pay, social security benefits and unliquidated personal injury claims etc.
Easy enough to understand, right? Not quite. Some of the complications include the following:
- Property that is titled in one spouse’s name isn’t necessarily considered separate property, especially if its upkeep and payments were made from a joint bank account.
- Gifted or inherited property that is exchanged for another property during the marriage is still considered separate, even though it is technically acquired during the marriage.
- Any increase of value in premarital/separate property after the start of the marriage is considered marital property and can be subject to division.
- This can also go in reverse, any decrease in value of a separate property during the marriage may also be considered by the court when it determines the overall value of the marital estate when dividing the marital property.
- Marital property includes debt incurred during the marriage. So regardless of whose name the debt is attached to, in Colorado, debt is allocated equitably.
Dangers of Commingling
To complicate matters further, some couples intentionally (or not) mix separate and marital property, referred to as “commingling”. For example, a premarital house owned by one spouse may become marital property if both spouses pay the mortgage and/or other housing related expenses. The same goes with a premarital bank account – even if held by one spouse prior to marriage, it may become marital property if both spouses make deposits into it (even if it’s in one spouse’s name).
R&H Case Study: A man and woman get married. They both own separate homes. To celebrate getting married, the wife puts her husband’s name on the deed of her house. After some prodding from the wife, the husband does the same with his home a few months later. Soon after, the wife files for divorce. Sadly, the husband realizes the marriage was a sham, in an effort for the wife to claim half the value of his home. Our attorneys at Robinson & Henry worked with the husband to retain his home and paying only a minimal cost to his wife for what she was lawfully entitled. We caution all couples to think twice about putting your spouse’s name on your premarital property. It could save you future headaches and your ability to retain your home should you get divorced.
Dividing of Marital Property
Once the court has decided what is martial and what is separate, it begins to decide how to divide marital property. Note, however, that even though the court puts aside separate property, it still bears weight on how the court decides to split martial property..
Don’t let the term “divide” fool you. Colorado law requires that a division is equitable (i.e. fair), not equal. This can be quite confusing. A spouse may think that since he or she had a higher paying job and put more money into the marital estate, it would be fair for them to receive a greater portion of estate when it is divided. However, the other spouse may have a low-paying job and no separate property to rely on. The court may decide to split the marital property in such a way that the spouse less able to replace the property receives a higher percentage of the marital assets.
When deciding how to fairly split the marital assets, a judge will consider the following factors:
- the financial needs and current circumstance of each spouse;
- each spouse’s contribution to the marital estate;
- the increase or decrease in value of any separate property;
- the health and age of each spouse;
- maintaining quality of life for both spouses and any children
Complications of Determining Marital Property Value
Before a court can determine what a fair and equitable division of the marital property is, it must first determine the market value of the assets. Since market values fluctuate over time, the court determines the asset’s value based on the date of the decree of dissolution, legal separation, annulment or as of the date of the hearing on the division of property, whichever occurs first. Given that there can be significant delays between the entry of the decree and the hearing on the division of property, this can cause quite a headache. This is especially true for those who decide to represent themselves in court without legal guidance from an attorney. The process can become much lengthier as you fight with your ex over what the martial estate may be worth.
Role of Appraisals
If the parties cannot agree on the value of the marital estate, then it will usually be appraised. This can be quite complex when, in addition to houses and cars, smaller overlooked items such as antiques and household goods can also be considered.
If you or your spouse owns a business, it will most likely also be appraised. In addition to the tangible assets (furniture, building, property), intangible assets (accounts receivable, value of work in progress, intellectual rights and “goodwill”) are also considered in the appraisal process.
Dissipation of Marital Property
If a court finds that a spouse misused martial property for non-marital purposes, then a court may “recapture” the lost value. For example, if one spouse uses marital property (income of either spouse) to buy gifts for an extramarital affair, then a court may recapture that money and give it to the other spouse, even before the remainder of the estate is divided.
Careful though, this doesn’t mean that if your spouse took trips to Hawaii or bought things that only benefited them that the court will recapture that money on your behalf. These purchases will still be seen as marital. That is because dissipation of marital property must arise from “intentional misconduct”. Like if a spouse were to quietly take money from a 401K before entering into a divorce, in an effort to prevent the other spouse from receiving their rightful portion of that marital asset.
R&H Case Study: In digging through disclosures in a recent case, R&H attorneys discovered that our client’s spouse had bought a second home in another state using marital money. This had neither been disclosed to our client during the marriage or to the court. If we hadn’t found this crucial piece of evidence, then our client would not have received their rightful portion of the property. As in all our cases, we made sure our client received their rightful portion of the entire marital estate when dividing martial assets in a divorce settlement.
If you suspect your spouse of improper transactions, one of our qualified attorneys can help you with filing financial releases, requests for production of documents, and interrogatories.
Dividing Pensions/Retirement Accounts in a Divorce
In divorce proceedings, retirement assets can be considered one of the largest assets of a marital estate to deal with – they include profit sharing plans, pensions, IRS’s and 401K’s. The Colorado Supreme Court has identified and approved several methods for valuing and dividing retirement plans. They are:
Deferred Distribution – This method is most commonly used. The court determines at the time of the decree the percentage of the benefit each party is to receive at retirement, so neither party needs to return to court for future orders.
Net Present Value Method – Using a CPA, the court calculates the net present value as of the official date of dissolution. Once the net present value of the pension is known, the court identifies the non-employee spouse’s interest. The court then has the option to award the entire pension to the employee spouse and awarding the non-employee spouse other assets having a value equal to the net present value of the pension.
Reserve Jurisdiction – This method is used only when a pension is unvested and unmatured (basically, when an employee has not yet completed the required years of work to receive benefits). Due to the speculative future value of such a pension, the court uses this method to reserve judgment until the employee retires (or some other future date). This can leave both parties uncertain about their future rights and obligations.
For both the deferred distribution and reserve jurisdiction methods, the Colorado Supreme Court ruled that courts must utilize the time rule formula. This formula finds the non-employee spouse’s share of the pension. The fraction’s numerator is the employee’s length of service from the start of marriage through the date of separation. Its denominator is the employee’s total length of service at retirement. The fraction is then divided in half – to equally divide the pension between both parties.
For example: During her 12 year marriage Liz worked for the same company, earning retirement benefits and retiring after 24 years. The shared interest would be the 12 years in which Liz was married and the other 12 years would be considered her separate property. The shared interest over those 12 years would then be divided in half – with Liz receiving a total of 75% of the retirement benefits.
As we discussed earlier in what constitutes marital property, educational degrees are not usually considered marital property. One would, therefore, assume that the debt attached to that degree (even if pursued during a marriage) is not considered to be a part of the martial estate, right? Wrong. In an example case In re: Marriage of Speirs, 956 P2.d 622, a Colorado court ruled in favor of the wife who obtained a law degree while married. While the husband argued that an educational degree is not part of the marital estate and thus the student debt in question should also not be considered. However, the court found that in the pursuit of higher education, both parties would have shared the financial benefits of the degree and thus the debt is considered marital.
The Family Pet – What Happens to Sparky?
One of the most personal and difficult aspects of dividing the marital estate can be deciding who gets the family pet. While pets can be considered by some couples to be like children, Colorado law disagrees. Legally pets are not children, despite how much we love them. Instead, they are recognized as personal property, which means they are another asset to be equitably distributed.
While there is no legal guidance on how to award a pet appropriately in divorce cases, a judge will most likely make a decision based on the best interest of the pet. At R&H we know that there are important factors that can help you retain custody of your pet, such as:
- who originally purchased the pet;
- paid for any vet bills or food;
- what the best living situation may be;
- who spent the most time caring for the pet; and
- who has the best economic resources for the pet.
Since a judge only has a few hours to get to know your case, without substantial and convincing evidence, they are unable to deem who is worthy or justified in retaining the pet. Therefore, it is even more important to obtain a knowledgeable attorney who can assess the evidence and present it in a way that works for your specific case.
What Happens to the Family Home?
When deciding what to do with the marital home in a divorce the court weighs all the factors. This can include the presence of children in the family home and/or any disproportionate economic need between spouses. If one spouse has greater economic need and is awarded full or partial custody of the children, the court may decide that it is in the best interest of the children and that spouse to retain the home, rather than liquidate it. In this case the other spouse may have wait to receive his/her portion of the house’s worth until the other spouse remarries, the children are emancipated or another time that the court appoints.
Earlier we discussed the role (or lack of) of marital misconduct in a no-fault state like Colorado. While this is true, the court will consider “special circumstances” when deciding what to do with the family home. If evidence is present that one spouse didn’t want the divorce and the family home had significant emotional value to that spouse, the court may award the home to that spouse.
“Going it Alone” – What’s wrong with Pro Se
Some couples decide to forgo having an attorney (also called “Pro Se”) and either go the route of mediation or self-representation. However, this is rarely advised. Even if you and your spouse are amicable and feel that you may agree on who gets what, you might be costing yourself more money and grief by trying to navigate the mountains of paperwork and intricacies of the court system on your own.
Colorado Stats on Pro Se: Approximately 75% of divorcees in Colorado file on their own. Of those, approximatley 2 out of 3 have to go back to court due to a variety of issues – from misfiled paperwork to unfair settlements. What seems like saving a buck now, may end up costing you much more time and money in the future. Get it done right the first time by contacting R&H – we have helped more than 700 clients in Colorado.
Don’t Just Pick Any Attorney
A good attorney will know the dangers of going to court and give you his or her honest opinion about the merits of the case. Our attorneys appear in the various court throughout the Front Range on an almost daily basis. We know how to tailor your case for the best possible outcome and how individual judges are likely to rule on certain issues.
We also know that there is always an element of playing Russian roulette when taking a case to trial. Despite their best intentions, a judge has only hours to get to know you and your case before making decisions on alimony, custody and dividing the marital estate. It is critical to present your case fully prepared, with the proper evidence and legal arguments to help you win on your most important issues.
In addition, divorce cases that go to trial can take months if not years. That’s why our attorneys work towards settlements when possible, which save our clients time and money, so long as the other side is acting reasonably and their demands are acceptable to you.