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How Does Divorce Impact Your Retirement Plan’s Savings?


Whether retirement is around the calendar corner or still decades away, probably the last thing on your mind during the distress of an impending divorce is your retirement savings. But with Colorado’s equitable division of marital property laws, it pays to consider the impacts of divorce on your retirement savings. When the state divides marital property in a “fair and equitable” manner, it’s important to understand everything that the division entails, what’s considered separate property vs. marital property, and how commingling separate property like retirement accounts can change their status.

Because most retirement plans are linked to the jobs we work so hard at for so many years, we tend to think of a retirement plan as separate property, but that isn’t the whole story when it comes to divorce in Colorado.

How Does Colorado Define Marital Property?

Determining how your divorce will affect your retirement account requires an understanding of how the state defines separate vs. marital property. Separate property is any assets you owned before your marriage and marital property is any property or assets you obtain during your marriage, regardless of whose name is on the account. However, married couples typically commingle their separate assets once they are married, either intentionally or incidentally. Commingling occurs in the following ways:

  • By adding a spouse’s name to an account
  • By granting a spouse access to an account
  • By adding funds to an account during the duration of the marriage
  • By spending money and/or time on improving the value of a spouse’s separate property

In most cases, a retirement account is subject to division because the balance increases during the marriage. This means the amount of the increase becomes marital property. For example, if you had $100,000 in a retirement account before your marriage and now the account balance is $250,000, only the original $100,000 is your separate property. The $150,000 increase in funds is considered marital property and is subject to division during divorce.

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How Do the Courts Divide a Retirement Account?

For many divorcing couples, a retirement account may be one of the largest assets in the marriage. Depending on the type of retirement account you have, the way the court divides it differs. In defined contributions plans like pensions and 401ks, the Colorado court will require the account holder to transfer the spouse’s portion of the funds to them as an IRA or similar account.  In a defined benefit plan which is based on the employee’s salary at the time of retirement as well as the number of years they work, the courts must first determine the amount accumulated during the marriage, and then 50% of that amount goes to the spouse at the time of the employee’s retirement.

Because of the tax impacts of dividing retirement accounts, it pays to have an experienced Colorado divorce attorney represent your best interests when it comes to the equitable division of assets during divorce so you don’t make mistakes such as cash withdrawals with negative tax implications that can cause you to lose thousands of dollars. A lawyer can guide you into the best way of equitably dividing assets, including retirement accounts, without suffering unnecessary losses. Call today to set up a consultation

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