Before entering a Decree of Dissolution of Marriage or Legal Separation, the court must determine the division of the divorcing or legally separating parties’ property. For this purpose, property is characterized as either marital or separate. “Marital Property” typically consists of all of the assets which a couple has acquired during their marriage including, for example, their home, other real estate, retirement accounts, savings and other investment accounts, stocks and even airline miles. “Separate Property” is considered by the court to belong to one spouse or the other and includes property acquired by an individual prior to marriage as well as property acquired during marriage by one of the following means:
- Property acquired by gift or by inheritance;
- Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift or inheritance;
- Property acquired by a spouse after a decree of legal separation; and
- Property excluded by a valid agreement of the parties such as a prenuptial or postnuptial agreement.
How does the court decide whether an asset is “marital” or “separate” property?
Title alone does not prove whether property is marital or separate and often times the characterization of property as marital or separate can be a complicated process. For example, property which was originally separate may be transformed into marital property when it has been commingled with other marital assets or title is transferred into the parties’ joint names. In order to establish that comingled property has retained its character as one spouse’s separate property, a party may be required to “trace” their acquisition of the disputed property back to its separate property origins. Depending on the type of property involved and its history of ownership, this may require the use of forensic accounting and/or other experts.
What is “equitable distribution”?
Colorado is an equitable distribution state meaning that the court must determine a fair, or equitable, division of the marital property – not necessarily an equal one. When determining what division of property is equitable, the court considers a number of factors, including:
- The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;
- The value of the property set apart to each spouse;
- The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live in the family home for a reasonable period of time to the spouse with whom the children will reside the majority of the time; and
- Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.
In theory, no one factor is more important than the others—all are to be given equal weight by the court. While the court may divide the marital property in any proportion the court determines to be fair and equitable, it is typically distributed in approximately equal shares. The court may not divide either spouse’s separate property or award one spouse’s separate property to the other spouse. While the court cannot distribute separate property, the court may consider the extent and liquidity of each party’s separate assets when deciding how and in what proportion it will distribute the martial property.
What happens if “separate” property has appreciated during the marriage?
To add another layer of complication to this process, any increase in the value of separate property which occurred during the parties’ marriage is characterized as marital property and thus, subject to equitable distribution by the court. A simple example of this occurs where one spouse has been contributing to a retirement account prior to the parties’ marriage. If the account was worth $100,000 at the time of the marriage and is worth $150,000 at the time of the divorce, the court would characterize the appreciation as a marital asset and might direct a distribution of a portion or even all of the $50,000 to the other spouse. Similarly, if one spouse owned a house before the marriage and continued to own the house in their sole name during the marriage, any appreciation in the fair market value of the house would be characterized as marital property and, accordingly, the value of this appreciation could be distributed by the court. While the court could not direct the sale of the house itself, it might award the non-owner a bigger share of a marital bank account or pension or even direct that the homeowner pay a cash distribution to the other spouse to account for the marital share of the home’s appreciation.
Does the court “equitably” divide the parties’ debts?
In addition to equitably distributing the assets of the marriage, the court must consider the equitable distribution of the parties’ debts. Much like the analysis for assets, the court must determine if a debt is martial or separate. Separate debt is debt that pre-existed the date of marriage such as is typically the case with student loans. With a few narrow exceptions, debt acquired during the marriage is presumed to be marital debt, no matter how it is titled.
How does each party learn about the other’s property and debts?
Information pertaining to marital property and debts is initially gleaned from the parties’ Sworn Financial Statement and mandatory financial disclosures. In almost every domestic relations case in Colorado, each party is required to prepare a Sworn Financial Statement which provides details about their incomes and expenses as well as all of the property, assets and debts acquired during the marriage. The Sworn Financial Statement is filed with the court; however, the information is not made public. The parties are also required to exchange certain mandatory financial disclosures with each other, including 3 years of tax returns, 3 years of personal and business financial statements as well as miscellaneous documents regarding the title of real property, appraisals and employment benefits. Information about the Sworn Financial Statement and the mandatory disclosures is available on the Courts’ website.