How to Deal with a Pera Account in a Colorado Divorce

Understanding Colorado PERA divorce challenges

As experienced Denver family law attorneys, we deal with all aspects of asset division. This can include division of real property, personal property, investment accounts, retirement accounts, and almost any other type of property you can imagine. PERA account division is a distinctive part of these cases that demands careful planning.

Why PERA account division is different

Beyond the normal questions that arise when dividing property and debt in a Denver divorce case, PERA (Public Employee Retirement Account) accounts come with additional questions and issues that need to be resolved.

Colorado law limits forced PERA splits

First, under Colorado law, a court cannot forcibly divide a PERA account.

This means that, without agreement, the judge or magistrate hearing your divorce case cannot give your spouse a portion of your PERA account. This is different than any other type of retirement account which can be divided by a special order to avoid adverse tax consequences (unless you or your spouse want to withdraw funds immediately, in which case, the taxes and penalties will still apply).

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Court alternatives when no agreement exists

However, this does not mean that, if your spouse is the one with the PERA account, this is the end of the analysis. While Colorado judges and magistrates may not be able to forcibly divide a PERA without agreement of the parties, they can give the non-PERA spouse more of the other marital property or less of the marital debt to off-set the other spouse’s receipt of the entire PERA.

Additionally, the court can order the spouse with the PERA to pay a certain amount to the other spouse each month upon retirement. Thus, effectively the main difference is that the PERA-receiving spouse is responsible for making the payments to the other spouse, as opposed to PERA making the payments directly, which could lead to tax complications or questions. This arrangement is sometimes called a spousal pension share.

Three primary methods to handle Colorado PERA retirement benefits

1. Present-value buy-out with a retirement plan valuation expert

If the parties are willing to agree to a division of the PERA account, there are basically three ways to divide the PERA account. Because a PERA account has a pension-component, the statement generated by PERA does not accurately reflect the present value.

Therefore, one option is to retain an expert with the qualifications to conduct a present value analysis of the PERA account, to determine the current value of the PERA. The benefit of this option is that, if there are multiple PERA accounts, knowing the present value can allow the parties to agree to an off-setting property division, as opposed to dividing both PERA accounts between the parties.

This method may also be helpful if it was a relatively short-term marriage and it is anticipated that the marital portion is small. Having a present value will enable the parties to discuss an off-setting property/debt division, as opposed to dividing the PERA so that the non-PERA spouse waits to receive a very small amount of money each month upon the other party’s retirement.

2. Formula division via direct PERA payout (QDRO alternative)

Another way to divide the pension is through a formula through which, upon the PERA recipient’s retirement, the non-PERA spouse will receive 50% of the marital portion of the PERA payout directly from PERA. The benefit of this option is that you can avoid the cost of an expert to value the PERA.

However it will necessitate the drafting of a Qualified Domestic Relations Order for purposes of the actual division of the property. This method of division requires agreement and full cooperation of the plan participant.

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3. Defer and divide at retirement

The final way to divide a PERA account is by holding the issue until the PERA recipient retires. This means you would not have an order on how the PERA is divided, you would wait until the PERA recipient retires and then return to the court for division.

This makes the most sense in the situation where the PERA recipient is only a year or two away from retirement- instead of paying for an expert or questioning the amount that will be received, the parties can simply wait until that time and know for sure what the numbers are.

The downside of this option is that there would be additional time and cost spent in returning to court and, often, courts are reluctant to leave issues open-ended. If the parties agree to the division, special attention also needs to be paid to the timeline for completion of the special order dividing the account as PERA has very specific deadlines for receipt of such order.

There is no one correct way to divide a PERA account and actual division may not be necessary in instances where there is offsetting property available to compensate the other party. If the allocation of a PERA account is not agreed upon parties will ultimately rely on the judge to make the decision.

Results can vary. A judge in an Arapahoe County divorce case might decide how to deal with a PERA differently from a judge in Jefferson County. Discretion allows for differing results and there is no black-and-white mandate set forth in statute.

As can be seen, this is a very complex issue and it is always best to discuss your case with an attorney that can advise you of the best options for your particular situation.