One issue which often comes up in the context of divorce is the division of retirement accounts. Retirement accounts are somewhat of an interesting matter, because these accounts tend to be thought of as uniquely separate types of property. When someone opens up and funds a retirement account, they don’t normally think of this type of account as something which could potentially be divided upon divorce. But, as it turns out, retirement accounts are not fundamentally different than any other type of asset that is subject to division. Let’s review some basics, and then discuss the details of retirement account division in divorce here in Colorado.
Quick Review: Equitable Distribution State & Marital Property
Before diving into retirement accounts, let’s briefly go over how property is divided in Colorado. Regular readers may recall that Colorado is an “equitable distribution” state, which basically means that courts will divide marital property in a fair and equitable manner. Importantly, a fair and equitable manner does not necessarily mean an equal manner, and so courts divide property unevenly or unequally as long as doing so is fair.
Regular readers may also recall that only marital property is subject to division, and the determination of marital property typically depends on the timing of acquisition. So, in general, if a piece of property is acquired during the marriage, the presumption is that this property is considered marital property and will be subject to division. This general principle can be complicated by other factors, but it holds true in many cases. In some cases, property can be both separate and marital simultaneously. This is actually the case for retirement accounts.
Retirement Accounts Can Be Divided in Divorce
Just like other property, retirement accounts are subject to division in divorce to the extent that the accounts are classified as marital property. What makes retirement accounts a bit unusual is that this ends up producing a mixed result in the majority of cases. In most cases, people begin funding a retirement account of some sort – IRA, 401(k), etc. – before they enter marriage. Then, they continue funding their account after marriage. If they divorce, they end up in a situation in which their retirement account is partially marital property, but also partially separate property. Again, everything comes down to the timing of the funding.
Let’s consider a simple example: a worker begins a retirement account in 2002. After contributing $50,000 to this account, the worker then gets married in 2008. When this worker divorces in 2018, the new value of the account is $200,000. In this example, only $150,000 of the account would be classified as marital property and subject to division. The other $50,000 which was funded prior to the marriage would be classified as separate property.
The discussion we’ve provided so far can be considered a rough overview of how retirement accounts are divided in divorce. It’s important to keep in mind, however, that retirement accounts can present complications depending on the particular facts. For instance, the actual division of a retirement account will require an additional court order, and the court order will be different depending on the type of retirement account involved. For instance, if the account is classified as a “qualified” pension, then a Qualified Domestic Relations Order (QDRO) will be necessary to actually divide the account funds. If, however, the account is a government pension, then a different court order will be necessary. The division of retirement accounts also often requires the use of outside experts, such as accountants or actuaries, because of the myriad issues which come into play (i.e. tax consequences, early withdrawal rules, etc.).
Contact the Drake Law Firm for More Information
In the future, we will likely come back and discuss some of these other issues in greater detail. For now, hopefully this answers a few preliminary questions regarding retirement accounts and property division. To learn more, contact the Drake Law Firm by calling 303-261-8111.