Colorado Divorce and Pension Rights

Did you know that one of the most valuable assets in a divorce can be a retirement account? It’s true. If you or your spouse works for the state or federal government, that person has a pension. The other spouse is entitled to a portion of that asset. It’s essential to understand Colorado’s approach to divorce and pension rights whether you hold the pension or might be entitled to a share.

In this article, Robinson & Henry Family Law Attorneys provide a great overview of this process.

Does One Spouse Have a Retirement Account?

Retirement accounts are savings plans that help you save money for retirement. They often have tax benefits. Common types include:

• 401(k): Offered by employers
• IRA: Individual accounts you can open yourself
• Pension plans: Employer-funded retirement income
• Government and military pensions: For public servants and veterans
• Social Security: Government benefits for retirees

Those listed above are the most common. However, there are also specialized accounts like 403(b) for non-profits, SIMPLE and SEP IRAs for small businesses, and the Thrift Savings Plan for federal employees.

Divorce and Pension Rights in Colorado 

Many private employers are beginning to phase out the pension, but some still offer it as an option. If you work for the federal or state government, you are likely enrolled in the Federal Employees Retirement System or the Colorado Public Employees Retirement Association.

If your marriage is ending, you stand at a legal intersection where divorce and pension rights meet. How this affects you will depend on two factors:

1. Whether the pension plan is offered by the government or a private employer, and
2. how the court divides retirement savings.

How the Court Divides Pensions

Property division during a Colorado divorce aims for a fair, not equal, split of marital assets. This is called equitable distribution. The court looks at factors like financial contributions, the duration of the marriage, and each individual’s needs.

This method certainly affects private pension and retirement account division. Courts have different ways of approaching divorce and pension plans, depending on whether the plan is offered by the government (public) or a private employer.

Dividing Retirement Pensions 

Courts have three ways of assessing the value of and dividing pension accounts, accounting for relevant factors and individual circumstances:

1. The Net Present Value: A financial expert determines the account’s net present value. One party will be awarded that lump sum in the marital asset balance sheet. This, in turn, will offset and impact overall equalization of asset.
2. Reserve Jurisdiction: One or both sides can ask the court to reserve jurisdiction until the pension matures. This means the court will decide on pension division at a later time. This only applies to private pensions When the pension holder starts receiving benefits, the other spouse can petition the court for its division. This method can only be used for private pension accounts.
3. A Fixed Amount or Fixed Percentage: The court may award the non-pensioner spouse a fixed amount (e.g. $125,000) or a percentage (e.g. 25 percent).
4. Using a Time Rule Formula: This method simply determines the marital share of the pension in question and gives one spouse half. The basic calculation is: Number of months married while pension was earned, divided by the number of months the pension-earning spouse worked at their job, then multiplied by .50, or 50 percent.

Example: The divorcing couple was married 16 years. The pensioner spouse worked at his/her job for 30 years. Their pension is worth $3000 per month. So … 16 divided by 30 = .53 and $3000 divided in half = $1500. $1500 x .53 = 795 per month for ex-spouse.

Note: Courts can and may adjust the time rule formula based on other factors in the divorce.

Talk to a Family Law Attorney About Your Divorce and Pension Rights

Whether you’re the spouse who holds a pension or the spouse who may be entitled to some of it, it’s important to know your legal rights. Schedule a meeting with one of our family law attorneys to talk about your particular circumstances. Call 303-688-0944 to start your case assessment.