Divorce can be emotionally and financially complicated. If you are considering a divorce or are going through one, you may be wondering which of your assets are subject to division. One important issue you may be especially concerned about is the impact of divorce on your retirement accounts. These accounts are ones that are built up over the length of your career and provide the opportunity to live comfortably upon retirement. For many couples, these accounts can make up a significant portion of their net worth.
If you are concerned about your financial well-being due to divorce, you should know there are strategies that can help you protect your assets, including your retirement accounts. At Plog & Stein, P.C., we understand the complexities of divorce and can help you through the legal process. In addition, our attorneys can help you protect your future with the zealous representation we provide to all our clients.
Below, this post will discuss some foundational aspects of divorce and retirement accounts so that you can be more fully informed when initiating your divorce proceedings.
What Are Retirement Accounts?
Retirement accounts are a form of investment accounts that are established with financial institutions. Generally, they promote savings for retirement through tax advantages. There are many of different types of retirement accounts, but some of the most common include the following.
401(k)s are typically offered by an employer as an employee benefit. In general, you do not have to pay income tax on the amount you contribute to your 401(k) each year. In some instances, an employer may match your yearly contributions to your 401(k) account.
Traditional IRA Accounts
IRA accounts, otherwise known as individual retirement accounts, are savings accounts that can grow on a tax-free or tax-deferred basis (depending on where you open your account). Almost anyone with taxable income can open a traditional IRA, and they are a popular method of retirement planning.
Roth IRA Accounts
Roth IRA accounts are a little different from traditional IRA accounts. In a traditional IRA account, you pay the tax when you take the money out of the account. On the other hand, in a Roth IRA, you pay tax when you put the money into the account. So when you have a Roth IRA, you can withdraw the money tax-free upon retirement.
Pension plans are a type of defined-benefit plan. They are usually provided by an employer and they provide a defined payment amount upon retirement. Pension plans are becoming less popular in the United States, but they are still commonly seen as a form of retirement asset.
Colorado Property Division Laws
Colorado is considered an “equitable division” state. This means that it is in the judge’s discretion of how to divide the spouses’ property upon divorce in an equitable (though not necessarily equal) manner.
When a judge considers how property will be divided, they will take into account what is “separate property” and what is “marital property.” Marital property is property that is acquired by either spouse after the marriage. Marital property includes all property acquired during the marriage except:
- Property acquired by gift, bequest, or devise;
- Property acquired in exchange for property acquired before the marriage;
- Property acquired by a spouse after a legal decree of separation; and
- Property excluded by valid agreement of the parties.
In Colorado, marital property is subject to equitable division, while separate property is not. Separate property includes homes, businesses, cars, and other assets that were acquired before the marriage, as well as those items listed above.
When dividing marital property, a judge will not take into consideration the fault or misconduct of either spouse. Instead, a judge will divide the property based on principles of fairness, taking into account:
- The contribution of each spouse to the marital property;
- The contribution of either spouse as a homemaker;
- The economic circumstances of each spouse at the time of the divorce;
- Any increases or decreases in value of separate property; and
- Any depletion of separate property for marital purposes.
These are just a few of the factors that the judge can take into consideration when dividing marital property.
How Are Retirement Accounts Divided in a Divorce?
Unless there is a valid prenuptial agreement stating otherwise, retirement accounts will generally be considered marital property. Therefore, retirement accounts are subject to equitable division in Colorado. The only exception to this rule applies to money that was deposited into the retirement account before the marriage.
Upon divorce, a settlement agreement should outline exactly how the assets will be split between the spouses, including any retirement accounts that grew throughout the marriage. Or, if the parties cannot agree, a judge will decide how to divide the accounts.
How Can I Protect My Retirement Accounts During a Divorce?
The United States has some of the highest divorce rates in the world. And unfortunately, divorce is an unavoidable option for many couples in Colorado. To protect your retirement assets during a divorce, you should try to plan ahead of time and ensure you have an experienced divorce attorney on your side.
Planning for a divorce before the marriage has ended can be an uncomfortable process for couples. However, it is best practice to have a sit-down conversation with your spouse about your assets and how they will be divided upon divorce. If you can come to a consensus, a pre- or post-nuptial arrangement will be the best way to save time and money in the event of a divorce. Further, it can provide both you and your spouse some much-needed security throughout the process.
Hire an Experienced Divorce Lawyer
The right divorce lawyer has the tools and experience needed to make sure you are in the best position possible, both during and after your divorce. The division of assets can get very complex, especially the division of retirement accounts. A divorce lawyer can guide you through the process and help simplify the legal nuances for you. They can help you craft creative solutions to help you protect your assets and keep your retirement accounts intact where possible.
How Can Plog & Stein, P.C., Help?
At Plog & Stein, P.C., we have a team of knowledgeable divorce attorneys at the ready. We have been serving the Denver community for over 20 years. As seasoned negotiators and litigators, we strive to reach the best outcome possible for each of our clients. If you would like to contact our legal team, you can reach out to us
online or by phone at 720-928-9615.