How are a Couple’s Finances Divided When They Divorce?

During a divorce, property division is nearly always one of the main items on the table for discussion between spouses.

The outcome of these discussions can greatly affect your transition to an independent life, so it is important to understand your rights and obligations when dividing property and debts in Colorado.

Colorado is an equitable distribution state – but what does that mean, in real terms, to you and your ex when you go your separate ways?

What is Equitable Distribution?

In Colorado, equitable distribution means that marital property is divided fairly, though not necessarily equally. A 50/50 split is possible, but the goal is a fair division based on each spouse’s circumstances. The process begins with distinguishing marital property from separate property.

• Separate property: As a general rule, anything owned before the marriage and certain gifts or inheritances received during the marriage.
• Marital property: Assets acquired during the marriage, regardless of whose name is on the title of the property. This can include homes, cars, and retirement accounts. Keep in mind that assets like retirement accounts usually increase in value during marriage, so the value of that asset from the date of marriage through the date of separation is generally subject to division.

Sometimes, property that starts as separate can become marital if it’s commingled. For example, if one spouse’s inheritance is deposited into a joint account and used for joint expenses, it is possible that the inheritance may now be considered marital property. The equitable distribution laws may be applied by Colorado courts if an out-of-court agreement cannot be reached by a divorcing couple.

Factors Considered in Equitable Distribution

Colorado courts take several factors into account when applying equitable distribution to financial assets and investments. These factors include:

• The length of the marriage.
• Each spouse’s financial and non-financial contributions to the marriage.
• The current and future financial needs of each spouse.
• The earning capacity and health of both parties.

A careful analysis is conducted to ensure the division reflects fairness. For instance, if one spouse was the primary earner while the other managed the household or cared for children, both contributions tend to be seen as equally valuable when dividing financial assets.

Dividing Financial Assets and Investments in Colorado

Retirement Accounts and Marital Property

In Colorado, retirement accounts such as 401(k)s, pension plans, and Roth IRAs are considered marital property if contributions were made during the marriage. Even if the account is in one spouse’s name, the value accumulated during the marriage is subject to equitable distribution. This means that these retirement accounts are divided fairly between the spouses, though not necessarily split down the middle.

For instance, while one spouse may retain the entirety of a retirement account, the other spouse may receive assets of comparable value to ensure fairness. The court will look at the total marital estate and each spouse’s financial situation to determine a just division of these assets.

Financial Investments and Their Division

Most financial investments, such as stocks, bonds, and mutual funds, are also part of the marital property. Under equitable distribution laws, most investments acquired during the marriage must be divided fairly. This includes not only the initial investment (if it was made during the marriage),but also any appreciation or growth that occurred

It’s important to note that federal law governs certain assets like Social Security benefits, which are not subject to division in a Colorado divorce. However, most other financial assets are divided according to state laws on equitable distribution.

Pre-Marital Investments and Appreciation

For investments that were owned by one spouse before the marriage, only the appreciation in value that occurred during the marriage is subject to division. For example, if a spouse owned a stock portfolio before the marriage and it increased in value while the couple was married, only the increased value would be considered marital property.

This concept adds complexity to the division of assets, as the court must determine how much value was gained during the marriage. In many cases, it may be necessary to hire financial experts to assess and provide an accurate valuation of the investments.

Court Intervention and Professional Assistance

If you and your spouse cannot agree on a fair division of financial assets and investments, the court will step in to make those decisions for you. A judge will consider the overall financial picture and aim to divide all marital property, including financial investments, in a fair and balanced manner.

However, due to the complexities involved—especially when dealing with large investments or retirement accounts—it is often necessary to seek professional assistance. Financial advisors and attorneys experienced in equitable distribution can help ensure that assets are divided in compliance with Colorado’s laws and that you receive a fair share of the marital estate.

What Are the Rules for Dissipation of Marital Assets?

In Colorado, there are clear rules that prevent one spouse from wasting or misusing marital assets once a divorce has been filed. This concept is known as dissipation of marital assets, and it ensures that both spouses are protected from unfair financial behavior during the divorce process.

If one spouse uses marital funds for personal or improper reasons—such as gambling, excessive spending, or even financing an affair—the court can take action. The Colorado courts may order that the wasted funds or assets be returned to the marital estate.

Although dissipation claims are not common, they are important to keep in mind if you suspect your spouse is depleting marital assets without your agreement. If you can provide proof of improper spending or asset misuse, you may be able to recover some of the lost value during the division of property.

How Are Debts Divided in a Colorado Divorce?

In Colorado, debts accumulated during the marriage are considered marital property, just like assets. This means that any outstanding debts—such as car loans, mortgages, or credit card balances—are part of the marital estate and must be divided through equitable distribution.

Even if a debt is in one spouse’s name, it is still classified as marital debt if it was incurred during the marriage. The key factor is whether the debt was taken on while the couple was married. However, if a debt was incurred before the marriage, it is typically treated as separate and remains the responsibility of the individual who took it on.

There are some exceptions to this rule. For instance, if one spouse recklessly spent money or took on debt for personal reasons, the court may treat that debt differently. In these cases, the spouse making the claim will need to provide evidence of reckless spending to ensure fair equitable distribution.

Student loans are sometimes viewed differently by the court. Because they are considered an investment in the individual’s future, they are often treated as separate debt. However, this can vary based on the specific details of the case.

What is the Process of Marital Asset Division?

Dividing marital assets and debts in Colorado can be complex and often requires careful negotiation and collaboration. The process follows equitable distribution laws, meaning the goal is to divide property fairly, but not always equally. If both parties can agree on how to split their assets and debts, they can avoid court intervention. However, if no agreement is reached, a judge will step in to make the decisions.

One common approach to dividing property is to use a property division spreadsheet. This document allocates specific assets and debts to each spouse and may include an equalization payment to balance the division, ensuring that both parties receive a fair share of the marital estate.

An amicable divorce allows for smoother negotiations, giving both spouses more control over the division process. You’ll need to determine what counts as marital property and what is separate, how debts and assets will be split, and then formalize these decisions in a Separation Agreement. Once signed, this agreement will likely be included in the final divorce decree.

Disagreements over property division are common. In some cases, mediation or arbitration can help resolve disputes without going to court. However, if the matter is left to a judge, the court will evaluate the value of each marital asset, consider relevant factors and issue a ruling on how the property should be divided.

Do You Need a Property Division Lawyer in Colorado?

If you are based in Colorado and are experiencing difficulties with matters of property division, the lawyers at Colorado Legal Group can help.

Fill out our free case evaluation form or call us at 720-594-7360 to get started.