Retirement Accounts

Retirement Issues in a Colorado Divorce

Many times in a divorce, retirement plans account for the largest class of assets a couple owns. In Colorado, generally, retirement plans, or at least their increased value during the term of the marriage, are considered marital property and divided in much the same way as real property. However, there are many differences between dividing most marital assets and dividing retirement plans. There can be huge tax costs, valuation differences, and problems with the division of some retirement plans, especially if a party intends to cash them out. Because of this, it is important to understand what a divorce will do to any retirement plans you might have, and to determine ways to ensure that your current retirement plans are not jeopardized.

Generally, any withdrawal from a retirement plan before you are 59 and 1/2 is subject to a 10% tax as well as the withdrawal being considered taxable income. The one exception to this is if you divide a retirement plan by using a Qualified Domestic Relations Order (QDRO) and keep the resulting plans intact.

QDRO’s do not shield all retirement plans from tax liability, and many plans such as IRA’s and Public Employee Retirement plans, have their own set of rules which govern their division and any tax liability.

QDRO’s must be signed by a state judge and they must be very detailed. Many times in Colorado, a judge will not check over a QDRO for accuracy, therefore careful and proper preparation of a QDRO by your legal and financial team is necessary. QDRO’s must detail how the division abides by federal tax law, and they must have proper valuation of the retirement plans. Once an order for a QDRO is made, it cannot be undone.

An improper QDRO can have serious implications for both parties involved. It can result in taxes being assessed against your entire retirement plan if the division is not done correctly. It can also result in the loss of large sums of money if there is not a proper valuation of the retirement plans.

Additionally, some retirement plans do not allow for a 50/50 split of the assets. Many times, a spouse will simply accept however the plan will divide the assets even if it is not equitable. This can cost a spouse large sums of money, and result in serious losses.

When considering a divorce and division of your retirement plans, it is imperative that you have a knowledgeable team of lawyers who will work to ensure that your future is safe. At Johnson Márquez Legal Group our lawyers specialize in Family Law and are familiar with all aspects of divorce and how it impacts our clients. Our attorneys always make sure that our client’s best interests and financial security are protected.

If you have questions regarding your specific case, or would like to schedule a free consultation with one of our attorneys, please contact our office or fill out one of our online inquiry forms.