How are a Couple’s Finances Divided When They Divorce?

During a divorce, property division is nearly always one of the main items on the table for discussion between husband and wife.

The outcome of these discussions can greatly affect your transition to independent life so it is important to understand your rights and obligations when dividing property and debts in Colorado.

Colorado is an equitable distribution state – but what does that mean in real terms to you and your ex when you go your separate ways?

If you have extensive concerns, submit a free case evaluation or give us a call at 720.594.7360.

What does equitable distribution mean?

Colorado’s equitable distribution rules mean that all marital property must be divided fairly, or equitably. This does not necessarily translate to a 50-50 split of property, but it certainly can and does often.

The rule means that marital property must be distinguished from non-marital property (or “separate” property) as the first step in any division process.

Separate property is any property owned by either spouse before the marriage, as well as certain gifts or inheritances obtained during the marriage.

Marital property is everything else that is accumulated during the term of the marriage. This includes retirement accounts and the increase in value of any assets brought into the marriage as separate property and added to. Even property acquired during the marriage that is only in one spouse’s name is considered to be marital by definition.

Property that used to be separate but was commingled after marriage can also sometimes be considered to be marital property. Even though it may have been commingled, or gifted to the marriage, and will now be considered marital property, this sometimes lends itself to a “contribution” argument.

The equitable distribution laws may be applied by Colorado courts if an out-of-court agreement cannot be reached by a divorcing couple.

Dividing financial assets and investments in Colorado

Marriage is viewed almost as a type of business partnership when it comes to property division at separation. If the finances of the partnership flourished during the marriage, both partners should profit fairly on the dissolution of the marriage.

Retirement accounts such as 401(k), pension plans, Roth IRA or other types of accounts are considered marital property if acquired during the marriage.

These, just like any other investments made during the term of the marriage, must be divided fairly in a divorce and may apply to part or all of the retirement account.

Most financial investments are included in the marital estate and divided equitably, although social security benefits are not subject to division and are dictated by federal law.

Division generally involves careful analysis of each spouse’s financial contributions to the marriage and their current financial situation.

If you and your spouse are not able to decide on a fair division, the court will make the decisions for you. A judge will aim to divide all financial investments and any other marital property in a fair manner between both parties.

With investments that were held by one spouse before the marriage, only the increase in value from the date of marriage until the divorce date is subject to division. Appreciation of value can add complexity to matters of property division in Colorado and may require professional assistance to resolve.

What are the rules for dissipation of marital assets?

There are strict rules in Colorado that forbid the dissipation or depletion of marital assets once either spouse has filed for divorce. These rules also affect the division of property if one spouse has acted improperly with marital assets or frivolously wasted marital funds.

If, for instance, one spouse used marital property for non-marital purposes (for instance, gambling or to fund an affair), the Colorado courts can order the lost value to be recaptured into the marital estate. This is so the “innocent” party is not penalized by the actions of the other spouse.

Even though this is a rare complication (as marital purchases are generally considered to be joint decisions between the spouses) it is worth bearing in mind if you are in this position and have adequate proof of wasted marital assets.

How are debts divided in a Colorado divorce?

Debts acquired during a marriage, just like assets, are considered marital property in Colorado.

As such, any outstanding debts at the time of the divorce, such as car loans, mortgages, credit card debts, and so on all count as marital property.

Debts must be divided equitably between the spouses regardless of whose name the debt is in – unless the debt was incurred by one of the parties before the marriage began or the debt was due to reckless spending (in this case you will need to present evidence for the dissolution of marital assets). Student loans are sometimes treated differently by the court, given they are seen as an investment in that particular spouse’s future, but this is highly fact-specific.

What is the process of marital asset division?

Because of the difficulties in dividing individual assets and debts, the process of property division can be complicated and involve significant negotiation and collaboration – unless a judge ends up deciding for you. For example, instead of dividing each and every asset/debt 5050, a property division spreadsheet can be created which allocates certain assets and debts to each party and then calculates an equalization payment.

The more amicable the separation, the more chance you have of dividing your property fairly without court intervention. You must decide what is marital property and what is not, how debts and assets are divided, and be prepared to sign a Separation Agreement. The judge may then incorporate this agreement into the final divorce decree.

Disputes over property division are common. You may require mediation or arbitration to keep the matter out of court.

If left to a Judge, the court will assess the value of each item considered to be marital property, weigh up all the relevant factors present, and then make a ruling about who gets what.

Do You Need a Property Division Lawyer in Colorado?

If you are based in Colorado and are experiencing difficulties with matters of property division, the lawyers at Colorado Legal Group can help.

Fill out our free case evaluation form or call us at 720-594-7360 to get started.