Dividing up property is one of the most stressful things about a divorce. In many cases, retirement plans can be the most valuable property in a marriage.
Property And Divorce in a Nutshell
Property includes houses, cars, credit cards, bank accounts, retirement, etc. During a divorce case, Colorado courts have to divide all of the parties’ marital property after identifying and setting aside any separate property. “Marital property” generally includes all property acquired by either spouse during the marriage, regardless of whose income was used to purchase or maintain the property. There are exceptions for gifts received by one of the parties, property that a party owned before the marriage, and certain other exceptions.
For martial property, it really does not matter whose name is on it. For example, if only one party’s name is on the bank account, title to the house, title to the car, etc., that property can still be considered marital property if it was acquired or earned during the marriage. The important question has more to do with when the property was acquired, not who acquired it.
If someone opened an account before marriage and keeps it through marriage, generally only contributions after marriage are marital.
What Does This Mean for Pensions?
Retirement accounts, including pensions, are usually only in the name of one spouse. However, any contributions to retirement accounts after marriage is presumed marital. As such, each spouse could argue for that retirement account or an equivalent value.
It should be noted that public employee retirement programs get their own extensive language, but there are four to five general ways to divide up a public pension:
- Fixed monetary amount (e.g., $200,000)
- A fixed percentage amount (e.g., 20%)
-
Time-rule formula (e.g., divide months of service while marriage by totals
months of service at time of retirement and multiply that number by retirement
money actually received by retirement).
- Note there is a second formula that is similar to the time-rule formula.
- Other formulas agreed upon by the spouses.
For public pensions (including military pensions), the language and timelines are precise. If you or our spouse has a public employee retirement plan, please make sure you address that issue early on in your process so you do not miss any important deadlines, and do not hesitate to contact the Harris Law Firm or another attorney of your choice to make sure you handle it correctly.
For private pensions, Colorado courts can use three different approaches to value them:
- Net Present Value (NPV) (e.g., value pension now, possibly with an expert)
- Time-rule above
- Reserve Jurisdiction (e.g., court waits until pension vests & matures to determine each spouse’s share)
Courts may only reserve jurisdiction for private pensions. Also, courts may not have authority to divide up (or modify) a public pension, unless the parties agree to division.
Regardless of whether a pension is public or private, it is important to get the calculations correct, using experts if needed. It is very difficult to re-do these if they are not handled correctly the first time, and for many retirement assets, missing a deadline can prevent you from dividing the asset at all.
How Does Dividing Up a Pension Work with the Rest of Martial Property?
Colorado courts divide martial property in an “equitable” way, not necessarily an “equal” way. As such, not everything will be divided 50/50. The court may decide to divide individual assets or even the entire estate in an unequal way if the court finds that it is equitable to do so in that particular case.
Courts often use spreadsheets to list out all of the property and debt in a case, allocating certain assets to one party, certain assets to the other party, and dividing some assets between the parties. When using a spreadsheet, Courts will often look at the total value each party receives after dividing up the assets to see who came out with more total value. Courts then try to balance these different values with an “equalization payment.”
Some retirement accounts, like 401(k)s, can be divided between the parties and have a relatively easy to determine value. Other assets, like pensions, can only be valued with the help of an expert. That is because assets like 401(k)s are “defined contribution” plans where the plan holder receives regular statements showing the present value of that account. Pensions, however, are “defined benefit” plans that guarantee the plan holder certain benefits once they reach retirement age. In order to determine the current value of that type of plan, someone has to calculate how many years that person is likely to collect on the pension, which requires them to factor in things like life expectancy.
When Courts have to consider a pension as part of a divorce, they will sometimes use a present value, let one spouse keep the entire pension, and balance that value against other assets in the marriage. For example, one spouse might keep the house so that the other can keep the entire pension. Other times, Court will enter an order requiring the pension itself to be divided between the parties, which typically means that neither party will receive any actual payments related to the pension until retirement age. When divided that way, the spouse who did not earn the pension through their own labor may want to look into survivor benefits just in case the other spouse dies first. Typically, if the spouse who earned the pension dies, the pension stops paying out altogether.
Retirement assets present lots of interesting challenges and complications for a divorce case. If you have a retirement or pension question and are concerned about how it can impact your divorce, do not hesitate to contact The Harris Law Firm to assist you through what could become a complicated process.