How is Property Divided in a Colorado Divorce?

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Education & Training with Rel Real Estate

Property division is one of the paramount and most challenging aspects of every divorce process. It can be a highly complicated issue to divide assets and debts, especially in families with significant property, including real estate, stock options, trusts, and pension plans. Division laws in Colorado are based on the concept of equitable distribution. In essence, it means that a judge must follow fair and just principles when deciding who gets what. But in reality, this task is not always straightforward.

Factors for property division

Couples without a prenuptial or out-of-court settlement contract where they agree on how to divide their property on their own must let a judge make the decision instead. A judge considers the relevant circumstances and several factors, including how and where each spouse contributed to the marital property, the marriage’s length, and the separate property’s value.

Certain other circumstances can also affect the distribution of certain property items. For example, in dividing a family home, the judge also considers whether the couple has minor children. Quite often, the spouse with whom the children live most of the time has a higher chance of keeping the marital residence.

In Colorado, unlike some other states, marital misconduct does not play any role in the number of assets set apart to the spouses. It means that if one of the spouses had an affair, the other wouldn’t be compensated in the form of a larger part of marital assets.  While disregarding marital faults, the court will consider economic ones, such as dissipation of property. Marital funds are dissipated when they are wastefully spent not for the benefit of the marriage (e.g., gambling or drugs) or to get rid of them before the divorce. The court will consider the value of dissipated assets when dividing all other property that’s left.

Separate vs. marital property

Under Colorado laws, the courts can only divide the spouses’ marital property while returning all separate assets and debts to the original owner. In general, marital property is everything that a family purchased or acquired after the wedding. The increase in the value of the separate property is also a joint asset. By the way, it doesn’t matter if a specific asset is titled in the name of only one spouse – it will be subjected to division anyway.

Separate property usually includes inheritance or personal gifts to only one spouse from a third party and anything acquired after a decree of legal separation or in exchange for separate property. However, there is an exception to this category, called commingling of individual and marital property. It can happen when, for example, one of the spouses held a bank account, which after the wedding became a joint one, or when the other party directly or indirectly contributed to its increase during the marriage. One possible scenario is to trace all the purchases made over the years of married life and determine what part of it belongs to which spouse.

Marital property division

Once the property has been classified into marital and separate, it needs to be evaluated. The evaluation of marital estate can be performed partly by the spouses and partly by professional appraisers or other financial professionals specializing in a specific area, for example, real estate agents or actuaries.  Assessment of the property value can cost hundreds or even thousands of dollars, especially if spouses decide to put a price tag on their joint business.

After the evaluation, the court can divide property between the parties in a way it deems fair. Each spouse may be awarded some part of items equal in value to those the other spouse receives. One more option is to split the obtained proceeds from selling everything. Some spouses choose to continue owning a particular property jointly.  However, it’s not always the right decision because of the possibility of rising tension and conflicts in the post-divorce period.

Real estate

One of the most pressing questions in every divorce is who will stay in the family home. The first thing to remember is that if there are minor children in the marriage, the court will most likely award the house to the parent who has physical custody. The fact is that children suffer more than others during divorce, so judges try to minimize stress for a child by preserving the same environment they are used to living in when the family was together.

In the absence of children, there are several options for how to divide the house. The easiest one is to sell it and split the money. But what if one of the spouses wants to keep living in the family home and doesn’t want to sell it? In this case, they can buy out the other spouse’s share or repay the mortgage in an equal part, relieving the other spouses from this financial obligation.

Bank accounts

Colorado equitable distribution principle also concerns bank accounts. They include savings accounts, deposits, business-related accounts, and other types as long as they are marital property. A bank account is considered joint in several cases:

  • It was created after the wedding;
  • Its amount increased during the marriage;
  • Its funds were used for family needs (for example, to pay for a loan).

Money from marital bank accounts can be split either by the judge or spouses if they reach a settlement agreement. Withdrawing all the funds or freezing the account without the other spouse’s knowledge is standard practice. However, the judge usually frowns upon such behavior. Plus, it can create additional difficulties if automatic payments are attached to an account, such as insurance premiums.

Debts

Every debt (credit card debts, mortgages, car loans) that one of the spouses incurs during the marriage is considered a joint liability. In Colorado, debts are divided equitably, which doesn’t always mean in half. For example, a spouse earning more income can pay a larger part of the debt. But in most cases, the judge proceeds from the premise that financial obligations should be divided equally (50-50). Further, both sides may argue why such a division would not be fair by presenting relevant evidence.

The best solution is to pay the debt before the divorce proceedings begin. While it can work for couples willing to end their marriage amicably, spouses with conflicting opinions most likely won’t agree about who should repay the loan. It should be mentioned that even if one of the spouses is ordered to pay the debt but fails to do so, the creditor can ask the other spouse to pay it if their name is also on the loan.

Retirement benefits

Retirement accounts may be a substantial part of the family property. As with other estates, they need to belong to a marital type of property distributed between the spouses in a divorce. Let’s take a retirement account owned before the wedding by one spouse but increased in value during the marriage. The premarital part will stay untouched, while the difference in money will be divided.

Defined benefit and contribution retirement plans can be divided using a Qualified Domestic Relations Order. The spouse who is not the pension account holder but was awarded a portion of it in a divorce will receive their share following the information in this order. For example, they can either obtain their part in lump-sum or be granted a share of future regular pension payments.

Final word

The division of property in Colorado is a multiple-sided process with a lot of issues to consider. In any case, understanding the critical steps in this process and knowing your rights will help protect your property and prepare for at least some of the challenges ahead. However, in contested divorce proceedings, it is better to hire professional advisors and lawyers to not lose in the property division battle.

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