If you are going through or considering a divorce in Colorado, you may be wondering how an investment account will be divided between you and your spouse. To understand how investment accounts are divided, you must understand a few basic principles about Colorado divorces. First, you should understand that Colorado is an “equitable” division state. Second, Colorado divorces only divide “marital” property and not “separate” property. Once these two principles are understood, we can then discuss how investment accounts are divided in a Colorado divorce.
What is an “Equitable” Division State?
In a Colorado divorce, property division must be made in an equitable manner. The simplest way to understand what Colorado Courts mean by an “equitable” division is that the marital property must be divided fairly and not necessarily equally (50/50). Therefore, it would wrong to assume that the property and debt will be divided 50/50 between the two spouses. Because Colorado courts divide a marital estate equitably or fairly, it is not uncommon for a court to divide the property unevenly.
What is the Difference Between “Marital” and “Separate” Property
In a Colorado divorce proceeding, the court may only divide “marital” property. Consequently, there is great importance placed on the distinctions between marital and separate (nonmarital) property.
Generally, all property acquired by either spouse after the date of marriage and prior to the divorce decree is considered marital property, regardless of title. The following exceptions are considered separate property:
- Property acquired by gift, bequest, devise, or descent
- Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent
- Property excluded by valid written agreement between the parties, such as a prenuptial agreement
If property was acquired prior to the marriage but increased in value during the marriage, the property will have both a marital component and a separate (nonmarital) component. The value of the separate property component would be the value of the separate property at the time the parties married one another. The value of the marital component would be the increase in value of the separate property over the life of the marriage.
For example, if one spouse owned an investment account that was valued at $100,000 on the day of marriage and subsequently was worth $250,000 on the date of divorce, the separate property value would be $100,000 and the marital property value would be $150,000.
How are Investment Accounts Divided in a Colorado Divorce?
When dividing property in a Colorado divorce, the court must follow a three-step process. Step 1 is to identify what is and is not considered “property.” In Step 2, the court determines which items are marital and separate property, setting aside each party’s respective separate property. Finally, in Step 3, the court considers all relevant factors in dividing the marital property to ensure an equitable result.
- Step 1: Generally, investment accounts such as brokerage accounts and retirement accounts (IRA, 401k, 403b, etc.), are all considered “property.”
- Step 2: To value the investment account, the court will typically look to the overall value of the account on the day of marriage and on the day of divorce. The value on the day of marriage is usually considered separate property while any increase in value of the account between the day of marriage and the day of the divorce is considered marital property.
- Step 3: Once the court decides what is marital property, the court will divide the marital property on an equitable basis after taking into consideration “all relevant factors.” It is important to note that Colorado is a “no-fault” state, which means that the court cannot consider marital misconduct, such as infidelity, when dividing property. “All relevant factors” include but are not limited to:
- The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;
- The value of the property set apart to each spouse;
- 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
- 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.
Once all of the relevant factors are considered, the court will then decide how to divide the investment account. Even if an investment account is titled solely in one spouse’s name, the account can still be awarded (in whole or in part) to the other spouse. Courts can generally divide investment accounts through a Qualified Domestic Relations Order (QDRO), which allows the court to divide the account in proportion to each party as it seems fit.
Don’t go through the process of a divorce without proper legal representation. Contact Burnham Law today to make sure your assets are protected and that your rights are represented. With the benefit of our expertise, you can move forward with confidence and peace of mind.