Colorado is considered an “equitable distribution” state, meaning the court does not have to create a 50/50 numerically even division of property upon divorce. Rather, the court will try to divide assets and debts fairly and equitably.
In Colorado, which is not a “community property” state, property acquired during the marriage is seen as owned by both spouses. Property can be divided by the spouses in a written document called a “Separation Agreement.” However, if the spouses are unable to agree, a Judge will divide their property for them.
The court will first set aside both spouses’ separate property belonging to them. Then the court will deal with “marital property,” which is all property acquired by either spouse during the marriage and separate property gifted to the marriage. The court will divide this property, taking into account various factors such as each spouse’s contribution to the acquisition of the marital property (including the contribution of a homemaker), where the children are going to live, which spouse has a more pressing need of the property, and which spouse made more use of the property during the marriage. Debt will also be allocated fairly between the spouses, taking into account each spouse’s income and the reason the debt was acquired.
If one party has been awarded property in the divorce, but the other party refuses to sign it over, the party to whom it actually belongs under the divorce orders may have the Clerk of the Court sign the transfer documents. To achieve this, specific procedures under Colorado Rules of Civil Procedure, Rule 70, must be followed.
Separate property includes property held before the marriage or after legal separation; property obtained by gift or inheritance; property excluded from the marital estate by a valid agreement between the spouses (e.g., a prenuptial agreement); or property purchased with such funds. This will not apply if property that might have otherwise been separate is gifted to or commingled with the marital estate.
Marital property might include business interests, such as in a closely held corporation, limited partnership, or LLC, investments, pension plans, 401(k) accounts, or the cash value of life insurance. Any increase in separate property during the marriage is also considered marital property. The marital home might be appraised for fair value and the equity, which is that value less any liabilities against the property, would be divided equitably.
In Colorado, if a spouse shares in the other’s retirement or pension plan, a Qualified Domestic Relations Order may be required. Such retirement plans can generally be divided into two categories: The first is a Defined Contribution Plan, where a defined amount of money belongs to the employee. The balance of the plan is constantly changing, but its value is definable at any given point. Examples include 401(k) plans, 403(b) plans, and profit sharing plans. The second category is a Defined Benefit Plan, where an employer promises to pay a defined benefit to an employee sometime in the future, based on a set formula. The classic example of this type of plan would be a pension plan, where the employee receives a set annuity after retirement.
Consultation with a competent attorney and/or accountant is recommended when determining whether and how to divide these benefits, as they can be complicated and result in significant tax consequences if not handled with care.