One of the harsh realities of getting divorced in Colorado is that Colorado law requires the court to make an equitable division of all marital assets and debts. Marital assets include, with limited exceptions, any assets or debts accrued during the marriage. Even retirement accounts, such as 401(k) plans, to the extent that they were created or increased during the marriage, are subject to division, regardless of whose name they are under.

Contributions made to a 401(k) plan, including employer matching contributions, will be considered marital property. A court will then divide the value of the account in a way that is fair. Our Colorado Springs divorce attorneys will offer you advice on your financial rights during a divorce and will help you work towards the best possible outcome for your case.

Ascent Legal Group offers legal representation to clients in the greater Colorado Springs area who are going through divorce or legal separation. If you are considering divorce and want to protect your financial rights, we can help.  Reach out to our law offices today to schedule a free consultation with a Colorado Springs family law attorney. 

Property Division in Colorado Divorces

To understand how retirement accounts like 401(k) plans are divided in a Colorado divorce, it is first important to understand how property division works. Colorado is a marital property state, not a community property state. This means that any assets and debts that a couple acquired during marriage (known as the marital estate) will be divided equitably between the spouses in a divorce.

Colorado distinguishes between two types of property that a couple may have: marital property and separate property.  Under Colorado law, marital property is subject to division, while separate property is not. This means that the characterization of assets and debts as either marital or separate property is incredibly important.

Marital property includes any assets or debts that a couple accumulates during a marriage. It can include real estate, bank accounts, retirement accounts, personal property, stock options, vehicles, household goods, and other types of assets. When a court issues a decree to terminate a marriage, it will divide marital property based on its value at the time of dissolution.

Separate property includes any assets or debts that were brought into the marriage by one spouse or property that a spouse receives during the marriage through gift or inheritance. This concept can often become more complicated, such as situations where a spouse purchased a vehicle shortly before marriage, but then both spouses made payments on the car loan during the marriage. In cases such as this, it is possible for separate property to become marital property. Similarly, the increase in value of separate property during a marriage is considered marital property.

When deciding how to divide marital property, Colorado judges will focus on fairness – not on an equal split. A court will consider several factors in making an equitable split, such as:

• Each spouse’s contribution to the acquisition of the property, which may include contributions as a homemaker;
• The value of each spouse’s separate property;
• The economic circumstances of each spouse at the time of the division, including the desirability for the primary custodial parent to remain in the family home; and
• Any increase or decrease in the value of separate property during the marriage, or any depletion of separate property for marital purposes (such as one spouse using money from an inheritance to pay for the other to obtain an advanced degree).

Property division can often be complex, particularly in cases where a couple has a significant amount of assets and/or debts. Our Colorado Springs divorce lawyers can help you understand your rights when it comes to property division and will advocate for you throughout the process.

Dividing a 401(k) in a Colorado Divorce

Although retirement accounts are held in the name of one spouse, any benefits that are acquired during a marriage are considered marital assets. The value of contributions to retirement accounts during a marriage will therefore be subject to property division.

This process can be more complicated than dividing a bank account because of tax considerations and when employer matching contributions are vested. If the 401(k) plan is subject to the Employee Retirement Income Security Act (ERISA), then the court will have to issue a Qualified Domestic Relations Order (QDRO) to divide these assets. Most employer-sponsored 401(k) plans are governed by ERISA.

There are two types of 401(k) plans:

• Traditional 401(k) plans are funded with pre-tax dollars. Withdrawals from the account are taxable at the time of withdrawal.
• Roth 401(k) plans are funded with post-tax dollars. All withdrawals are tax-free at the time of withdrawal.

401(k) plans are offered by private employers, often with matching contributions. For example, an employer may contribute up to 4% of an employee’s annual compensation. Employer contributions, just like employee contributions, are marital property if made during the course of the marriage.

The division of a 401(k) account is based on the value of the account as of dissolution, less any pre-marital contributions. For example, if one spouse started a 401(k) plan after getting married, and its value at the time of the divorce is $200,000, then the entire $200,000 is marital property that is subject to division. If the spouse started the account before marriage and $50,000 of the $200,000 was a pre-marital contribution, then $150,000 of the account is marital property.

To determine the marital share, a court will examine the account statements from the date of marriage and the time of dissolution to show the difference in value. There can also be other factors that come into play, such as a spouse taking out a loan against the 401(k) during the marriage or otherwise withdrawing funds. In addition, if the retirement account lost value during the marriage, then there will not be any marital share to divide.

Once a 401(k) plan is divided pursuant to a QDRO, then the non-employee spouse owns their interest in the 401(k). This amount will grow separately from their ex’s portion of the account. The non-employee spouse may have to rollover the 401(k) plan into a different account if they want to make any contributions to it.

In theory, dividing a 401(k) plan or other retirement accounts may seem simple. However, in practice, there are a lot of different factors to be considered when dividing up a spouse’s retirement account. Our Colorado Springs divorce lawyers can analyze your case and offer you thoughtful legal advice on your rights and likely outcomes for property division based on the specific facts of your case.

Reach Out to a Colorado Family Law Attorney for a Free Consultation

One of the fears that many people have about getting divorced is how it will affect them financially. Divorce can be expensive, both in terms of splitting up your assets (like a retirement account) and paying legal fees. As experienced Colorado family law attorneys, our goal is to help you develop a strategic plan to protect your interests – including your financial stability.

At Ascent Legal Group, we represent individuals in Colorado divorces and related family law matters, including child custody, alimony, and child support. We understand how Colorado law applies to various aspects of property division, including the division of 401(k) plans. We’ll put our expertise to work for you to help you achieve the best possible outcome. To learn more or to schedule a free 30-minute consultation with a Colorado Springs divorce lawyer, give us a call at 719-256-0067 or fill out our online contact form.