Dissolution, Pre-Nup, Debts & More
The division of marital property in Colorado is generally a two step process:
First, it must be determined what constitutes marital property. Marital property usually consists of property acquired by either spouse during the marriage. Marital property usually does not include property acquired by gift or inheritance, or excluded by a valid prenuptial agreement,
Division of Marital Property
Second, once the marital property is defined and valued, the marital property must be divided equitably. However, equitably does not mean the property is divided 50-50. In determining the equitable division of property, the Court will look at all relevant factors including: (a) the contributions of each spouse; (b) the value of property set apart to each spouse; (c) the economic circumstances of each spouse; and (d) any increase, decrease or depletion in the value of any separate property during the marriage.
Not all Marital Property is Created Equal
Complicating the process is the fact that all assets are not worth what they appear to be worth.
What if the marital property of a couple equals $800,000 and consists of:
- Family home with $200,000 in equity,
- Ski-condo with $200,000 in equity,
- 401K with a current market value of $200,000, and
- Savings account with $200,000.
Which would you take and why? The answer to that question depends on a number of factors.
- Do you have a steady income to pay your bills?
- Do you need the money to live on immediately?
- Can you afford to maintain the family home? If so, what if there are unexpected costs associated with maintaining the family home?
- If you sell the family home, will there be any capital gain taxes to pay? If so, what will they be?
- Can you sell the family home?
- If you sell the home, can you qualify for a mortgage on your own?
- What if you try to sell the home and find out it needs a new roof and $30,000 in repairs?
- If you sell the ski-condo, will there be any capital gains to pay, and if so, how much? If you do not sell the ski-condo, will you be able to rent it out and cover the costs to maintain it?
- If you take the 401K and need to the money to live on, will there be an early withdrawal penalty? Will you have to pay income tax on the amount withdrawn? If so, how much is the penalty and what is the tax bill? Many people fail to realize, until it is too late, that if they cash out their 401K, it might only be worth ½ of its market value after penalties and taxes are paid.
Personal Business Interests
If either you or your spouse owns a business, it can get even more complicated. When a business is involved, the parties usually need to hire an expert to determine the value of the business. Then, once the value of the business is determined, it can get even more difficult in determining how to divide the business.
Determine what Each Asset is Worth based on your Circumstances
The division of marital property can be complex and it usually takes an experienced lawyer to help you obtain a fair result. Therefore, before agreeing to any type of property settlement, make sure you have considered all factors that determine the value of each asset.