THE REPRESENTATION YOU NEED IN ORDER TO PROTECT YOUR FAMILY
How Are Retirement Accounts Handled During Divorce?
Posted in Divorce on September 30, 2021
If you and your spouse are planning on getting a divorce, there are many things that you will need to consider. One is the financial impact of the divorce, including how your marital assets and debts will be divided between you and your partner. If either or both of you have retirement accounts, savings accounts, pension plans or 401(k)s, find out how these assets will be handled during a divorce case in Colorado.
Is it Separate or Community Property?
Colorado uses an equitable division law to determine property division in a divorce. This means that if your case goes to trial, a judge will allocate a percentage of all marital assets and debts to each spouse based on what is equitable or fair. This does not necessarily mean an equal or 50/50 split. However, the courts will only have jurisdiction over community property, not separate property.
Community property is anything acquired during the course of a marriage. Separate property is brought into the marriage by one of the spouses. In general, any funds that you deposited into a retirement account before your marriage are classified as separate property and will not be divisible during a divorce. Anything deposited after your marriage is part of the community property and subject to division. Note, however, that separate funds in a retirement account can be viewed as community property if your marriage lasts a long time.
What Type of Retirement Account Do You Have?
How a judge decides to split a retirement account depends on the type of account in question. Most retirement plans are defined contribution plans or defined benefit plans. In the first type, the individual or employee contributes a set amount to the retirement savings account. The employer may match contributions up to a maximum. Examples of this type of plan are a 401(k) and pension plan. In a defined benefit plan, the amount the employee or person receives is calculated based on the length of time worked and the salary earned at the time of retirement.
When dividing a defined contribution retirement account in a divorce case, the courts in Colorado will require the spouse with the plan to transfer part of the value of the plan at the time of the divorce to the other spouse in the form of an IRA or similar retirement account. This transfer will not be taxed. When dividing a defined benefit retirement account, the courts will first determine the value of the benefit accumulated during the length of the marriage.
Then, an amount that is deemed appropriate will be given to the other spouse – only after the owner of the account retires. This is known as deferred distribution. Typically, a spouse is entitled to about 50 percent of a retirement account, although this can change depending on the case. The division of retirement accounts during a divorce is a complicated issue that typically requires professional accountants and financial experts.
What Is a Qualified Domestic Relations Order?
A Qualified Domestic Relations Order (QDRO) is a document that is required for retirement asset division if you wish to avoid tax and withdrawal penalties. A QDRO instructs the administrator of the retirement account on how to allocate funds to each spouse after a divorce in accordance with a settlement agreement or court order. Your case may require more than one QDRO depending on the diversity of your retirement assets and how much they are worth.
Consult With an Attorney for Assistance
If your divorce involves retirement savings accounts or pension plans, contact an attorney for assistance. A Fort Collins divorce attorney can help you protect your nest egg with creative legal strategies such as alternative dispute resolution. A lawyer can also help you understand and obtain QDROs to protect you from financial penalties. Working with an attorney can help you safeguard your future.