Because Colorado is an “equitable distribution” state, the marital property shall be divided in an equitable fashion. Equitable does not mean equal, but rather what is fair. The court will encourage the parties to reach a settlement on property and debt issues, otherwise the court will declare the property award.
If the parties can not enter an agreement regarding the distribution of the marital property, the court shall set apart to each spouse his or her property and shall divide the marital property, without regard to marital misconduct, in such proportions as the court deems just after considering all relevant factors including: (a) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker; (b) The value of the property set apart to each spouse; (c) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse with whom any children reside the majority of the time; and (d) Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.
“Marital Property” means all property acquired by either spouse subsequent to the marriage except: (a) Property acquired by gift, bequest, devise, or descent; (b) Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent; (c) Property acquired by a spouse after a decree of legal separation; and (d) Property excluded by valid agreement of the parties. (Colorado Statutes – Article 10 – Sections: 14-20-113)
Marital property includes marital assets and marital debts acquired during the marriage. This means houses, businesses, investments, pension plans and 401(k) accounts. Separate property means gifts and inheritances received during the marriage as well as property acquired before the marriage.
Separate property belongs to the individual with title. However, in Colorado any increase to separate property that occurs during the marriage is marital property and is subject to division. For example, interest paid on a bank account bequeathed to a party by a passing relative could be considered marital, but the underlying amount itself would not. Property obtained prior to the marriage is separate, but any increase in value during the marriage is marital property. Some property is always considered “immune,” such as an inheritance. An inheritance is separate property; however, any increase in value of an inheritance during the marriage will be considered marital property.
In Colorado, as in many jurisdictions, the equity of the marital home is often one of the biggest marital assets. The equity is the market value of the house, less any liabilities against the property, such as a mortgage, taxes, or home equity loans. Normally, making this calculation requires a paid real estate appraisal or a real estate agent can prepare a market analysis for free.
From there, couples choose one of three options to divide the equity:
- The spouses sell the home and divide the proceeds.
- One of the parties may refinance the home and “buy out” the other party.
- One spouse (usually the custodial parent) remains in the home with the exclusive use and possession for a certain period of time (for example, until the youngest child graduates from high school), then either buys out the other spouse or sells the home and divides the proceeds.
In Colorado, the court may include the retirement benefits and plans earned by both spouses as marital assets available for division.
Retirement benefits vary greatly but can generally be divided into two groups:
- Defined Contribution Plans: A defined amount of money belonging to the employee. The employee and/or the employer make defined contributions. The balance of the plan is constantly changing, but its value is definable at any given point. 401(k)’s, 403(b)’s and profit sharing plans fall into this category.
- Defined Benefit Plans: A retirement benefit where an employer promises to pay a benefit to an employee sometime in the future, based upon some type of formula. Normally, this formula is based on the employee’s salary near the end of his or her career and the number of years he or she worked for the employer before retirement. Defined benefit plans are much more complicated to value and often require the professional evaluation of an actuary to determine exact values.
In Colorado, if spouses share in each other’s retirement or pension plan, a Qualified Domestic Relations Order must be completed. A QDRO is a written set of instructions that explains to a plan administrator that two parties are dividing pension benefits. The instructions set forth the terms and conditions of the distribution – how much of the benefits are to be paid to each party, when such benefits can be paid, how such benefits should be paid, etc. The division of retirement and pension benefits can be complicated and result in a myriad of tax consequences. Consultation with a tax attorney or accountant is recommended when determining whether and how to divide such benefits.